"What’s Your Fraud IQ? Think you
know enough about corruption to spot it in any of its myriad forms? Then rev up
your fraud detection radar and take this (deceptively) simple test." by Joseph
T. Wells, Journal of Accountancy, July 2006 ---
http://www.aicpa.org/pubs/jofa/jul2006/wells.htm

"The odds are better in Las Vegas than on Wall Street"
This is the same fraud as the one committed by Max in the Broadway show called
The Producers (watch the Bloomberg video of how the fraud works)
Max sold over 100% of the shares in his play.
A fraudulent market manipulation contributed to the Wall Street meltdown
Phantom Shares and Market Manipulation (Bloomberg News
video on naked short selling) ---
http://video.google.com/videoplay?docid=4490541725797746038

Also see
"Strain, Differential Association, and Coercion: Insights from the Criminology
Literature on Causes of Accountant's Misconduct," by James J. Donegan and
Michele W. Ganon, Accounting and the Public Interest 8(1), 1 (2008) (20
pages)

I think there are two CBS Sixty Minutes
television modules by Steve Kroft that the entire world should view. These are
great videos for college students to view while keeping in mind that both videos
are negatively biased. What follows is my primer in defense of derivative
financial instruments and hedging activities.

Frank Partnoy is best known as a whistle blower at Goldman Sachs who blew
the lid on the financial graft and sexual degeneracy of derivatives
instruments traders and analysts who ripped the public off for billions of
dollars and contributed to mind-boggling worldwide frauds. He is a Yale
University Law School graduate who shocked the world with various books
(somewhat repetitive) including the following:

Bob Jensen's Primer on Derivatives
Although the roots of the
sub-prime mortgage scandal lie in Main Street lending or more money for
housing than borrowers could ever afford to pay off, the opportunity to do so
was afforded by lenders like Countrywide Financial (a mortgage lending company
owned by Bank of America) being able to pass on the default risk by selling the
high risk mortgages to Fannie Mae and Freddie Mac, quasi government corporations
that
took the brunt of the loan losses. But some banks like
Washington Mutual (WaMu became the largest bank failure in the history of
the world) were greedy and kept huge portfolios of these high-return and
high-risk mortgage investments.

Fannie, Freddie, WaMu and the other risk
takers assumed that the value of the real estate (the mortgage loan collateral)
would be sufficient to pay back the loans in case of mortgage default
foreclosures. But they underestimated the fraud going on on Main Street where
property appraisers were fraudulently estimating real estate values way above
market value and mortgage companies were lending way above amounts that
borrowers would ever be able to pay back. My essay on the sub-prime mortgage
scandal along with an alphabet soup set of appendices can be found at
http://www.trinity.edu/rjensen/2008Bailout.htm

In addition much of the current scandal also
is attributed to Wall Street writing of
credit
derivative contracts that essentially "insured" against default of debt with
counterparties investing in debt instruments that were "insured" by credit
derivatives written by such giant firms as Bear Stearns and American Insurance
Group (AIG). But unlike insurance where sufficient capital reserves are
required, Congress
passed legislation in Year 2000 that allowed Wall Street to write credit
derivative insurance without having any capital reserves to cover the losses.
Congress and the Wall Street firms just never anticipated the massive amount of
mortgage defaults attributable to Main Street's lending frauds. When the
magnitude of the amounts owing to counterparties on credit derivatives became
known, giant firms like Bear Stearns and AIG would've defaulted due to credit
derivative obligations to counterparties. This would have led, in turn, to
counterparty failure of many giants in the world banking system. The Federal
Reserve decided early on to bail out Bear Stearns credit derivative losses, and
the first $70 billion given to AIG by Hank Paulsen in the new Bailout Bill went
to pay off AIG's counterparties to AIG's credit derivative contracts ---
http://www.trinity.edu/rjensen/2008Bailout.htm#SEC

So what is a derivative financial instrument?
Consider first a financial debt instrument that historically was a contract in
which a borrower borrowed money from a lender and the risk for the entire
notional (the loan principal) passed from borrower to lender. For example, if
Company B sold bonds for $100 million to Company C, the entire notional ($100
million) is at risk of being paid back to Company B. Credit rating companies, in
turn, rate those bonds as to financial risk with such ratings as AAA (virtually
certain to be paid back) all the way down to junk bonds (very high risk of
default) of the entire notional amount. Credit ratings greatly impact the price
received by Company B for its bond sales.

A derivative financial instrument is similar
except that the notional amount is often not at risk because these contracts
"net settle." For example, if Airline A enters into futures contracts to buy a
million gallons of jet fuel one year from now at a forward price of $4 per
gallon, the notional full value of a million gallons of fuel never changes
hands. After a year passes, Airline A net settles with the counterparties on the
net difference between the current spot price and the contracted forward price.
Although in some cases a purchase/sale contract can specify physical delivery of
the notional, most derivative contracts net settle without putting the entire
notional amount at risk.

Hence, a derivative financial instrument has a
notional (a quantity such a a million bushels of corn), an underlying (such as
the market price of a particular grade of corn), and net settlement provisions
that do not put the value of the entire notional amount at risk. Only the
difference between forward and spot prices on the notional is at risk. The
entire notional becomes at risk only if the future spot prices fall to zero or
nearly zero. This is not likely to happen in the case of commodities like corn,
oil, copper, gold, silver, etc. It can happen in the case of credit ratings
where $100 million in AAA bonds fall to zero when the debtor is declared to be
hopelessly bankrupt. This is why credit derivatives are
much more risky than commodity derivatives. If a credit derivative is written on
a $100 million bond contract, the entire $100 million might be lost. The
probability of losing the entire value of the notional is much greater with
credit derivatives than with commodities that are almost certain not to decline
to $0 in value.

The underlying is generally called an index.
Examples include corn prices, oil prices, interest rates (e.g., Treasury rates
or LIBOR rates), and credit ratings (AAA, AAB, BBB, etc.). A huge difference
between commodity versus credit derivatives lies in the depth (number of buyers
and sellers) and the frequency of trades in the market. For example, in the
derivatives markets for corn futures or corn options (puts and calls) there are
thousands upon thousands of buyers and sellers and the market prices (e.g.,
futures, option, and spot prices) change by the minute each trading day. In the
case of a credit derivative written on the bond rating by a credit rating agency
there is no deep market and the credit rating rarely changes. There is no
underlying "market" in the case of a credit derivative. Hence a credit derivative differs fundamentally from a commodity derivative
in the depth of the market and the frequency of trading on the market. Its a
mistake to lump credit derivatives and commodity derivatives in the same a
single type of contracting called derivatives.

By any other name, a credit
derivative is an insurance contract where risk of default is not market based
but depends upon some disaster just like casualty insurance protects against
such disasters as fire, wind, and flood. The entire value of the notional (the
entire value of each bond insured for credit risk or each house insured for fire
loss) is at risk.

In contrast, a commodity derivative
is market based and does not in general put the the entire notional at risk
because commodity values are not likely to be wiped out entirely. Commodities
may move up and down in value, thereby generating variations in the basis (which
is the difference between spot and forward prices), but it would be extremely
rare for the a commodity to fall to zero in value. It is much more common for an
insured house to be burned down entirely or an insured (with a credit
derivative) bond notional to fall into junk bond status.

AIG and Allstate and State Farm are
required by insurance laws to have capital reserves to cover a large number of
houses burning down at the same time. However, if all insured houses burned down
at the same time, insurance companies could not possibly cover all the losses.
This is why a single insurance company might refuse to insure more than a
certain percentage of houses in a give geographic area. Insurance written above
a company's limit is spread to other companies by a process called
reinsurance.
Insurance companies are subject to regulation that requires capital reserves to
cover actuary-determined expected losses and contract clauses that limit risk in
case of catastrophes such as nuclear holocaust.

Credit derivative insurers could not
write insurance contracts for credit default without capital reserves and other
catastrophe clauses until Congress in Year 2000 allowed investment banks like
Bear Stearns and insurance underwriters like AIG to enter into credit derivative
insurance without capital reserves and catastrophe clauses. The fraudulent
sub-prime loan market became a catastrophe in terms of real estate loans covered
against default by credit derivatives. Bear Stearns, AIG, and the other credit
derivative underwriters had insufficient capital reserves and would've defaulted
on their credit derivatives if the U.S. government had not stepped in to cover
amounts owed to credit derivative counterparties. The government justified
bailing out these obligations by stating that the domino effect would've
otherwise brought down the entire banking system. On this I'm a cynic, but
that's another matter entirely. History is history at this point.

What is sad today is that
derivatives in general are getting a bad name!
Commodity derivatives (including interest rate risk derivatives) are
great vehicles for managing financial risk provided
the commodities and their derivatives are both traded in deep markets with
virtually zero probability that commodity values will fall to zero. Sadly, most
people in the world just do not appreciate the importance of maintaining active
commodity derivative markets for managing risk.

Ignorant people, especially ignorant
members of Congress, may move to ban or severely restrain all derivative markets
rather than to merely reclassify credit derivatives as insurance contracts
subject to insurance laws. This does not mean, however, that I think that
commodity derivative contracting should be more regulated for protection against
unscrupulous sellers of derivative contracts. Like my hero Frank Partnoy, I've
argued for years that there should be more regulation of sellers of derivative
contracts.

I have a detailed history of
derivative instrument contract scandals and the evolution of accounting rules
(national and international) for derivative contracts at
http://www.trinity.edu/rjensen/FraudRotten.htm#DerivativesFrauds
At each point in the way I've applauded Frank Partnoy's appeal for both expanded
use of derivative instruments for managing risk and expanded regulations to stop
firms like Merrill Lynch, Morgan Stanley, and other unscrupulous outfits from
writing derivatives with built-in financial complexity intended to obscure risk
and screw fund investors who did not understand what they were buying into.

This is important in accountancy, because all organizations need internal
controls to detect counterfeit currency
Read more about counterfeit currency from a very good module at
http://en.wikipedia.org/wiki/Counterfeit
Probably the biggest fear of worldwide criminals is that world economies will go
cashless.

Question
Why doesn't some of the information below appear prominently on Hannaford's
Website?Fortunately, there are no Hannaford stores close to where I live.
Hannaford cut corners when protecting customer privacy information.

Hannaford is a large New England-based supermarket chain with a good
reputation until now.
Recently, Hannaford compromised credit card information on 4.2 million customers
at all 165 stores in the eastern United States.
When over 1,800 of customers started having fraudulent charges appearing on
credit card statements, the security breach at Hannaford was discovered.
Hannaford made a press announcement, although the Hannaford Website is seems to
overlook this breach entirely ---
http://www.hanaford.com/
My opinion of Hannaford dropped to zero because there is no help on the
company's Website for customers having ID thefts from Hannaford.
I can't find any 800 number to call for customer help directly from Hannaford
(even recorded messages might help)

And when the
Vice President of Marketing gets quoted in
the press talking about the security breach, it means that
there is no CIO (Chief Information Officer) at the company.
It means their network was designed haphazardly with only a
minimal thought to security. What, they couldn’t get a
quote from the President of Marketing? How
does the dairy stocker in store 413 feel about the breach?
He probably knows as much about network security as the
Marketing VP.

All of this
means that as the days go on, you will see more and more
headlines talking about this breach being much worse than
originally thought. The number of fraud cases will climb
precipitously… and no one will be fired from Hannaford.

If you shop
there and have used a credit card, get a copy of your credit
report ASAP.

By law, you
get one free credit report per year. You can contact them
below.

Bernard Madoff, former Nasdaq Stock Market chairman and founder of Bernard
L. Madoff Investment Securities LLC, was arrested and charged with securities
fraud Thursday in what federal prosecutors called a Ponzi scheme that could
involve losses of more than $50 billion.

According to
RealMoney.com columnistDoug Kass, general partner
and investment manager of hedge fund Seabreeze Partners Short LP and
Seabreeze Partners Short Offshore Fund, Ltd., today's late-breaking report
of an alleged massive fraud at a well known investment firm could be "the
biggest story of the year." In his view,

it is bigger than
Enron, bigger than Boesky and bigger than Tyco.
It attacks at the core of investor confidence -- because, if true,
and this could happen ... investors might think that almost anything
imaginable could happen to the money they have entrusted to their fiduciaries.

Bernard Madoff, founder
and president of Bernard Madoff Investment Securities, a
market-maker for hedge funds and banks, was charged by federal
prosecutors in a $50 billion fraud at his advisory business.

Madoff, 70, was arrested
today at 8:30 a.m. by the FBI and appeared before U.S. Magistrate
Judge Douglas Eaton in Manhattan federal court. Charged in a
criminal complaint with a single count of securities fraud, he was
granted release on a $10 million bond guaranteed by his wife and
secured by his apartment. Madoff’s wife was present in the
courtroom.

"It’s all just one big
lie," Madoff told his employees on Dec. 10, according to a statement
by prosecutors. The firm, Madoff allegedly said, is "basically, a
giant Ponzi scheme." He was also sued by the Securities and Exchange
Commission.

Madoff’s New York-based
firm was the 23rd largest market maker on Nasdaq in October,
handling a daily average of about 50 million shares a day, exchange
data show. The firm specialized in handling orders from online
brokers in some of the largest U.S. companies, including General
Electric Co (GE). and Citigroup Inc. (C).

...

SEC Complaint

The SEC in its complaint,
also filed today in Manhattan federal court, accused Madoff of a
"multi-billion dollar Ponzi scheme that he perpetrated on advisory
clients of his firm."

The SEC said it’s seeking
emergency relief for investors, including an asset freeze and the
appointment of a receiver for the firm. Ira Sorkin, another defense
lawyer for Madoff, couldn’t be immediately reached for comment.

...

Madoff, who owned more
than 75 percent of his firm, and his brother Peter are the only two
individuals listed on regulatory records as "direct owners and
executive officers."

Peter Madoff was a board
member of the St. Louis brokerage firm A.G. Edwards Inc. from 2001
through last year, when it was sold to Wachovia Corp (WB).

$17.1 Billion

The Madoff firm had about
$17.1 billion in assets under management as of Nov. 17, according to
NASD records. At least 50 percent of its clients were hedge funds,
and others included banks and wealthy individuals, according to the
records.

...

Madoff’s Web site
advertises the "high ethical standards" of the firm.

"In an era of faceless
organizations owned by other equally faceless organizations, Bernard
L. Madoff Investment Securities LLC harks back to an earlier era in
the financial world: The owner’s name is on the door," according to
the Web site. "Clients know that Bernard Madoff has a personal
interest in maintaining the unblemished record of value,
fair-dealing, and high ethical standards that has always been the
firm’s hallmark."

...

"These guys were one of
the original, if not the original, third market makers," said Joseph
Saluzzi, the co-head of equity trading at Themis Trading LLC in
Chatham, New Jersey. "They had a great business and they were good
with their clients. They were around for a long time. He’s a
well-respected guy in the industry."

The case is U.S. v. Madoff,
08-MAG-02735, U.S. District Court for the Southern District of New
York (Manhattan)

What was the auditing firm of Bernard Madoff Investment Securities, the
auditor who gave a clean opinion, that's been insolvent for years?Apparently, Mr Madoff said the business had been
insolvent for years and, from having $17 billion of assets under management at
the beginning of 2008, the SEC said: “It appears that virtually all assets of
the advisory business are gone”. It has now emerged that Friehling & Horowitz,
the auditor that signed off the annual financial statement for the investment
advisory business for 2006, is under investigation by the district attorney in
New York’s Rockland County, a northern suburb of New York City.
"The $50bn scam: How Bernard Madoff allegedly cheated investors," London
Times, December 15, 2008 ---
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5345751.ece

It was at the Manhattan apartment that Mr Madoff
apparently confessed that the business was in fact a “giant Ponzi scheme”
and that the firm had been insolvent for years.

To cap it all, Mr Madoff told his sons he was going
to give himself up, but only after giving out the $200 - $300 million money
he had left to “employees, family and friends”.

All the company’s remaining assets have now been
frozen in the hope of repaying some of the companies, individuals and
charities that have been unfortunate enough to invest in the business.

However, with the fraud believed to exceed $50
billion, whatever recompense investors could receive will be a drop in the
ocean.

"Bernie Madoff's Victims: The List (as known thus far) ," by Henry
Blodget, Clusterstock, December 14, 2008 ---
http://clusterstock.alleyinsider.com/2008/12/bernie-madoff-hosed-client-list
Jensen Question
How could such sophisticated investors be so naive? At a minimum, investors
should consider whether the auditing firm has deep pockets. Bernie's auditors,
Friehling & Horowitz, probably do not have
any pockets at all in order to streamline for speed while fleeing the scene.

The three-person auditing firm that apparently
certified the books of Bernard Madoff Investment Securities, the shuttered
home of an alleged multibillion-dollar Ponzi scheme, is drawing new
scrutiny.

Already under investigation by local prosecutors
for its potential role in the scandal, the firm, Friehling & Horowitz, is
now also being investigated by the American Institute of Certified Public
Accountants, the prestigious body that sets U.S. auditing standards for
private companies.

The problem: The auditing firm has been telling the
AICPA for 15 years that it doesn't conduct audits.

The AICPA, which has more than 350,000 individual
members, monitors most firms that audit private companies. (Public-company
auditors are overseen, as the name suggests, by the Public Company
Accounting Oversight Board, which was created in 2003 in response to
accounting scandals involving WorldCom and Enron.)

Some 33,000 firms enroll in the AICPA's peer review
program, in which experienced auditors assess each firm's audit quality
every year. Forty-four states require accountants to undergo reviews to
maintain their licenses to practice.

Friehling & Horowitz is enrolled in the program but
hasn't submitted to a review since 1993, says AICPA spokesman Bill Roberts.
That's because the firm has been informing the AICPA -- every year, in
writing -- for 15 years that it doesn't perform audits.

Meanwhile, Friehling & Horowitz has reportedly done
just that for Madoff. For example, the firm's name and signature appears on
the "statement of financial condition" for Madoff Securities dated Oct. 31,
2006. "The plain fact is that this group hasn't submitted for peer review
and appears to have done an audit," Roberts says. AICPA has now launched an
"ethics investigation," he says.

As it happens, New York is one of only six states
that does not require accounting firms to be peer-reviewed. But on the heels
of the Madoff revelations, on Tuesday, the New York State senate passed
legislation that requires such a process. (The bill now awaits Gov. David
Paterson's signature.) "We've not been regulated in the fashion we should've
inside the state," says David Moynihan, president-elect of the New York
State Society of Certified Public Accountants.

David Friehling, the only active accountant at
Friehling & Horowitz, according to the AICPA, might seem like an odd person
to flout the institute's rules. He has been active in affiliated groups:
Friehling is the immediate past president of the Rockland County chapter of
the New York State Society of Certified Public Accountants and sits on the
chapter's executive board.

Friehling, who didn't return calls seeking comment,
is rarely seen at his office, according to press reports. The 49-year-old,
whose firm is based 30 miles north of Manhattan in New City, N.Y., operates
out of a 13-by-18-foot office in a small plaza.

A woman who works nearby told Bloomberg News that a
man who dresses casually and drives a Lexus appears periodically at
Friehling & Horowitz's office for about 10 to 15 minutes at a stretch and
then leaves. (State automobile records indicate that Friehling owns a Lexus
RX.) The Rockland County District Attorney's Office has opened an
investigation to see if the firm committed any state crimes.

People who know Friehling, through the state
accounting chapter and through the Jewish Community Center in Rockland
County (where he's a board member) were reluctant to discuss him. Most
members of both boards wouldn't comment except to say they were surprised by
Friehling's connection to Madoff.

"He's nothing but the nicest guy in the world,"
says David Kirschtel, chief executive of JCC Rockland. "I've never had any
negative dealings with him."

A new study by researchers at Vanderbilt University
in Nashville and Albert Einstein College of Medicine in New York City
suggests a biological explanation for why certain people tend to live life
on the edge — it involves the neurotransmitter dopamine, the brain's
feel-good chemical.

Dopamine is responsible for making us feel
satisfied after a filling meal, happy when our favorite football team wins
....It's also responsible for the high we feel when we do something
daring,...skydiving out of a plane. In the risk taker's brain, researchers
report in the Journal of Neuroscience, there appear to be fewer
dopamine-inhibiting receptors — meaning that daredevils' brains are more
saturated with the chemical, predisposing them to keep taking risks and
chasing the next high.....

The findings support Zald's theory that people who
take risks get an unusually big hit of dopamine each time they have a novel
experience, because their brains are not able to inhibit the
neurotransmitter adequately. That blast makes them feel good, so they keep
returning for the rush from similarly risky or new behaviors, just like the
addict seeking the next high...."It's a piece of the puzzle to understanding
why we like novelty, and why we get addicted to substances ... Dopamine is
an important piece of reward.

Continued in article

Jensen Comment
Be that as it may, some risk takers are merely trying to recover or at least
average out losses which, if successful, is more of a relief than a thrill. The
St. Petersburg Paradox may be more as a recovery strategy than a thrill ---
http://en.wikipedia.org/wiki/St._Petersburg_paradox
Bernie Madoff probably got dopamine surges from his villas, Penthouses, and
thrills of scamming investors, but at some point he might've been speculating
recklessly in options derivatives in a panic to save his butt. The same might be
said for any gambling addict who first gets "doped up" on the edge, and then
bets more recklessly by betting the farm at miserable odds when "sobered up."

Apparently Bernie is now going to plead insanity. I think that's great
defense as long as the court insists on long-term confinement as a pauper in
Belleview rather than a posh psychiatric hospital ---
http://en.wikipedia.org/wiki/Bellevue_Hospital

This may be a reason why some students, certainly not all, cheat for a better
grade. Just the thrill of getting away with breaking the rules may lead to a
dopamine surge just like a person who shoplifts an item that she/he neither
needs nor wants. In my small hometown in Iowa, the wife of a high school coach,
an other very dignified woman, was addicted to shop lifting items that she
really didn't need or want. Our coach made an arrangement with downtown
merchants to simply bill him for items that she thought she purloined without
payment. The merchants kept a sharp and silent watch on her whenever she entered
their stores.

Robert Edward Rubin (born August 29, 1938) is
Director and Senior Counselor of Citigroup where he was the architect of
Citigroup's strategy of taking on more risk in debt markets, which by the end of
2008 led the firm to the brink of collapse and an eventual government rescue
[1]. From November to December 2007, he served temporarily as Chairman of
Citigroup.[2][3] From 1999 to present, he earned $115 million in pay at
Citigroup[4]. He served as the 70th United States Secretary of the Treasury
during both the first and second Clinton administrations.
Wikipedia ---
http://en.wikipedia.org/wiki/Robert_Rubin

A new Citigroup scandal is engulfing Robert Rubin
and his former disciple Chuck Prince for their roles in an alleged Ponzi-style
scheme that's now choking world banking. Director Rubin and ousted CEO Prince -
and their lieutenants over the past five years - are named in a federal lawsuit
for an alleged complex cover-up of toxic securities that spread across the
globe, wiping out trillions of dollars in their destructive paths.
Paul Tharp, "'PONZI SCHEME' AT CITI SUIT SLAMS RUBIN," The New York Post,
December 5, 2008 ---
http://www.nypost.com/seven/12042008/business/ponzi_scheme_at_citi_142511.htm

Prosecutors have expanded their investigation of
prominent New York attorney Marc Dreier, uncovering hundreds of millions
more of missing funds in what they characterize as an "extraordinary" fraud
played out over two years.

A federal magistrate judge ordered Dreier to remain
behind bars Thursday, denying bail because of the "enormous risk of flight."
Dreier was arrested in New York Sunday evening and has been charged with
fraud in an alleged brazen scheme to bilk sophisticated hedge funds.

Assistant U.S. Attorney Jonathan Streeter said in
court Thursday the loss from the alleged fraud is $380 million, well more
than the $113 million cited in criminal charges filed Monday because of new
information pouring into the prosecutor's office.

The alleged fraud has been carried out since at
least January 2006, Streeter said, and targeted some of the most
sophisticated institutional investors. Dreier, a Harvard and Yale-educated
litigator with a roster of celebrity clients at the 238-attorney firm he
founded in 1996, is a "Houdini of impersonation and false pretenses,"
Streeter said at Thursday's bail hearing.

Dreier's lawyer, Gerald Shargel, had asked that
Dreier be released on a $10 million bond signed by Dreier's 19-year-old son
and 85-year-old mother and allowed to live under house arrest at his beach
home in Quogue, N.Y., or at his Manhattan apartment.

Shargel also told Judge Douglas Eaton that Dreier
was prepared to meet with the court-appointed receiver of the Dreier LLP law
firm Thursday evening to help identify and locate assets and would provide a
complete financial statement. None of Dreier's money is overseas, he said.

But Streeter successfully argued the government's
case that Dreier could have squirreled away substantial assets overseas.
Much of the $380 million is unaccounted for, he said. With his firm in
tatters and his U.S. property to be seized--and with overwhelming evidence
against him--Dreier had nothing to lose by skipping out of the country, he
said.

Prosecutors initially accused Dreier of selling
$113 million of fake notes to two hedge funds in October in an elaborate
scheme that involved forgery and ruse. Canadian law enforcement arrested
Dreier last week alleging he impersonated the senior counsel of a major
Canadian pension fund to effect a similar scheme.

The evidence now shows the activity may have
targeted many more hedge funds over a far longer period of time, Streeter
says.

On top of that, employees and partners of the
Dreier law firm learned last week that tens of millions were missing from
client escrow accounts and other firm accounts.

Dreier even managed to transfer $10 million by
telephone from escrow accounts to his personal account last Thursday while
sitting in a Canadian jail awaiting a bail hearing, the documents say.

Dreier, the only equity partner, is the only person
authorized to make transfers from the escrow accounts, according to court
documents. A statement by a Dreier law partner says $37.5 million of $38
million attributed to a single client had been transferred from the firm's
escrow accounts into an account controlled by Dreier, but the statement
didn't give a time frame for that transfer.

The tip-off about the missing funds was a request
by a Dreier partner, Norman Kinel, to Dreier to disburse $38 million in
client escrow funds for unsecured creditors of 360 Networks, a Seattle
telecommunications company that emerged from bankruptcy in 2002. The Dreier
firm represents the unsecured creditors.

Kinel first requested the funds on Dec. 1. On Dec.
2, when he realized the transfer hadn't been made, he twice requested the
funds again. He learned of Dreier's arrest on Dec. 3 and, through a lawyer,
contacted the Federal Bureau of Investigation and the U.S. attorney.

John Provenzano, the law firm's controller, said in
the court documents that at the time of Kinel's request, the escrow accounts
had only $19 million in them.

Dreier was in contact with partners at the firm
last week, according to the court documents. Asked about the missing escrow
funds for 360 Networks, Dreier is reported to have said he could have sold
some of the art collection to return the money if he had been allowed to
return to New York.

"I understood from his conversation that Mr. Dreier
was implicitly admitting he had improperly used client escrow funds," says
the court declaration by Joel Chernov, one of the partners at Dreier who was
on that phone call.

Dreier's world started collapsing in October, his
lawyer said, when an accounting firm employee told him he would go to the
police after finding out Dreier allegedly falsified accounting materials
using the firm's name as part of his scheme.

Even then, his lawyer argued, Dreier left the U.S.
a few times and came back, compelling evidence that he was not a flight
risk. He traveled to Dubai on business in October and to St. Bart's in the
Caribbean right before Thanksgiving, "knowing full well his life was
unraveling," Shargel said. He had a private plane available to him in Canada
last week but decided to fly commercial back to the U.S., where authorities
were waiting at LaGuardia Airport to arrest him.

Dreier led an opulent, jet-setting life by most
reports, with several homes and a 120-foot yacht. Now he sits in a maximum
security wing of the federal prison in Manhattan, where he has no books, no
television and no visitors. His lawyer asked the judge Thursday to at least
have him moved to a more suitable part of the prison. "You could lose your
mind in there," Shargel argued.

FINANCIAL firms have already been drenched by
mortgage-related losses. Now a wave of litigation threatens to assail them.
According to RiskMetrics, a consulting firm, between August and October
federal securities class-action lawsuits were filed in America at an
annualised pace of around 270—more than double last year's total and well
above the historical average. At this rate, claims could easily exceed those
of the dotcom bust and options-backdating scandal combined.

At most risk are banks that peddled mortgages or
mortgage-backed securities. Investors have handed several writs to Citigroup
and Merrill Lynch. Bear Stearns has received dozens over the collapse of two
leveraged hedge funds. A typical complaint accuses it of failing to make
adequate reserves or to explain the risks of its subprime investments, and
of dubious related-party transactions with the funds. Several firms,
including E*Trade, a discount broker with a banking arm sitting on a
radioactive pile of mortgage debt, are being sued for allegedly failing to
disclose problems as they became apparent to managers.

But one thing that sets the subprime litigation
wave apart from that of the 2001-03 bear market is its breadth. After the
collapses of Enron and WorldCom, lawsuits were targeted at a fairly narrow
range of parties: bust internet firms, their accountants and some banks.
This time, investors are aiming not only at mortgage lenders, brokers and
investment banks but also insurers (American International Group), bond
funds (State Street, Morgan Keegan), rating agencies (Moody's and Standard &
Poor's) and homebuilders (Beazer Homes, Toll Brothers et al).

Borrowers, too, are suing both their lenders and
the Wall Street firms that wrapped up their loans. Several groups of
employees and pension-fund participants have filed so-called ERISA/401(k)
suits against their own firms. Local councils in Australia are threatening
to sue a subsidiary of Lehman Brothers over the sale of collateralised-debt
obligations (CDOs), the Financial Times has reported. Lenders are even
turning on each other; Deutsche Bank has filed large numbers of lawsuits
against mortgage firms, claiming they owe money for failing to buy back
loans that soured within months of being made.

“It seems that everyone is suing everyone,” says
Adam Savett of RiskMetrics' securities-litigation group. “It surely can't be
long before we get the legal equivalent of man bites dog, where a lender
sues its borrowers for some breach of contract.”

State Department officials have suspended a program
that allows refugees in the U.S. to bring family members into the country after
an investigation revealed widespread fraud in the system. Since the 1980's, the
State Department has granted refugee family members who are left behind in
war-torn countries priority-3 access to the U.S. Refugee Admissions Program on a
case-by-case basis. After suspicions of fraud were raised last year – often
involving unrelated children being claimed as family – the State Department
conducted DNA testing of 3,000 applicants to the program, to see if they were
actually related to the family members they claimed. In more than 80 percent of
the cases, the applicants either refused to take the tests or were discovered to
have DNA that didn't match their reported family members. "Rampant fraud puts stop to U.S. refugee program: DNA
confirms fewer than 20% telling truth about family ties," WorldNetDaily,
December 13, 2008 ---
http://www.worldnetdaily.com/index.php?fa=PAGE.view&pageId=83580

"5 Reasons I Hope Classmates.com Gets Sued Into Oblivion: It's
time for Classmates.com to change or close up shop. A lawsuit against the
company might just prompt some movement" by JR Raphael, PC World via The
Washington Post, November 13, 2008 ---
Click Here

Have you heard? Someone's
suing Classmates.comover those e-mails it's been
blasting the world with for the past decade. My reaction? It's about damned
time.

Here's the scoop: A man from San Diego says he
received e-mails from Classmates.com claiming his former classmates were
"trying to contact him"through the site. (Surely
you've received one or 100 of those, too -- I know I have.) Our guy joined
the service, paying for a premium membership ($15 for 3 months) to gain
access. Then, he said, he discovered that no old friends had attempted to
get in touch or even looked up his name.

"Of those www.classmates.com users
who were characterized ... as members who viewed Plaintiff's profile, none
were former classmates of Plaintiff or persons familiar with or known to
Plaintiff for that matter," the lawsuit says.

The suit claims Classmates.com has pulled similar
tricks on countless other unsuspecting users. It demands the company refund
subscriptions fees and pay an additional fine for deceptive advertising.

I, for one, hope the suit is a massive success.
Why, you might ask? Allow me to explain.

How happy are people who get Classmates.com
e-mails? A quick glance at the Consumer Affairs complaints page for the
company will give you an idea. I found dozens of complaints from the past
month alone. The BBB gives Classmates a C+ rating. The reason for the rating
is "number of complaints filed."

"I have called them several times to stop sending
me junk e-mail, and they keep telling me to unsubscribe, which I have done
10 times," writes Jeff from Michigan.

"I have tried many times to have them remove my
name from their mailing list and they do not acknowledge my request," notes
Skip from Arizona.

Look through the consumer complaints on
ConsumerAffairs.com and see just how many people say they're being billed
without authorization. Many users say they gave a credit card number for a
trial and kept getting charged long after the trial's end, despite numerous
cancellations. Many users also say they can't even login to the site, and no
one will answer their requests for help.

When I tried Classmates.com I couldn?t even look at
my high school class list (or any other class) without first giving my
personal information, including e-mail address. See a connection here?

I can see how Classmates.com might have been
appealing back in 1995, when it first launched. But nowadays, you can find
better and easier ways to connect with old classmates -- ones that are both
cost- and spam-free. (Facebook, anyone? MySpace?) The company's audacity in
continuing to lure curious people into paying money to find out what
"mysterious person" is interested in them just floors me.

On November 19, 2008, the United States District
Court for the Western District of Oklahoma entered final judgment against
Robert G. Cole in SEC v. Cole, Civ 08-265 C (W.D. Okla.), an insider trading
case the Commission filed on March 13, 2008. The Commission’s complaint
alleged that Cole, a former sales representative for Diebold, Inc., made
over $500,000 in illegal profits by using material, nonpublic information to
trade Diebold securities. Diebold is an Ohio-based public company that
manufactures and sells automated teller machines, bank security systems, and
electronic voting machines.

The Commission’s complaint alleged that on
September 15, 2005, shortly after learning from his sales manager that
revenues and orders in Diebold’s North American regional bank business were
significantly below target, Cole began
purchasing hundreds of soon-to-expire Diebold put options contracts, at a
total cost of $70,110, anticipating that Diebold would lower its earnings
forecast and the price of Diebold stock would fall. As alleged in the complaint, on September 21, 2005 —
one day after Cole completed purchasing these Diebold put option contracts —
Diebold announced that it was lowering its earnings forecasts, primarily
because of a revenue shortfall in the company’s North American regional bank
business. After this public announcement, Diebold’s stock price dropped
sharply, closing at $37.27 per share, which was a 16% drop from the previous
day’s closing price of $44.13. As the complaint alleged, Cole immediately
sold the Diebold put option contracts for $579,190, realizing illicit
profits of $509,080 (a 700% return).

The Commission alleged that Cole violated Section
10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder.
Without admitting or denying the allegations in the complaint, Cole
consented to the entry of a final judgment that permanently enjoins him from
future violations of these provisions, and orders him to disgorge his
illicit profits of $509,080, which will be deemed satisfied by a forfeiture
order entered in a related criminal case. In that case, U.S. v. Robert Cole,
No. 5:08-CR-327 (N.D. Ohio), Cole pled guilty to a felony charge of
securities fraud, and was sentenced to a prison term of 1 year and 1 day,
two years of supervised release, forfeiture of $509,080, and a $180,000
fine.

Question
When is the Nobel Price not a Noble (or even an ethical) prize?

A very serious developing story is being heavily
covered by German media, but Sweden's two major daily newspapers remain
conspicuously and Swedishly silent: The Nobel Prize Committee is coming under
scrutiny for possible criminal charges of bribery and corruption in connection
with this year's award in medicine. On Monday, December 8th, two days before the
award ceremony, it came to light that two Nobel affiliated corporations—Nobel
Media and Nobel Webb—have in the past six months received an undisclosed amount
said to be "many millions" from Swedish/American pharmaceutical giant Astra
Zeneca, which benefits financially from the award given to German Harald zur
Hauser for his discovery of Human Papilloma Virus, claimed to cause cervical
cancer. AstraZeneca, which holds patents on and collects royalties for both
human papillomavirus (HPV) vaccines currently available—Gardasil in the U.S. and
Cerverix in Europe (he latter of which has been linked to at least 16 deaths in
young girls)—stands to benefit greatly from the 2008 Nobel Prize given to German
Harald zur Hauser for his discovery of HPV and its link to cervical cancer.
Celia Farber, Splice Today, December 11, 2008 ---
Click Here

The SECfiled
insider trading charges in another "pillow-talk" case, alleging that a
former registered representative at Lehman Brothers misappropriated
confidential information from his wife, a partner in an international public
relations firms, and tipped a number of clients and friends. The SEC's
complaint alleges that from at least March 2004
through July 2008, Matthew Devlin, then a registered representative at
Lehman Brothers, Inc. ("Lehman") in New York City, traded on and tipped at
least four of his clients and friends with inside information about 13
impending corporate transactions. According to the complaint, some of
Devlin's clients and friends, three of whom worked in the securities or
legal professions, tipped others who also traded in the securities. The
complaint alleges that the illicit trading yielded over $4.8 million in
profits. Because the inside information was valuable, some of the traders
referred to Devlin and his wife as the "golden goose." The complaint further
alleges that by providing inside information, Devlin curried favor with his
friends and business associates and, in return, was rewarded with cash and
luxury items, including a Cartier watch, a Barneys New York gift card, a
widescreen TV, a Ralph Lauren leather jacket and Porsche driving lessons.

The complaint alleges that, based on the
information provided by Devlin, the defendants variously purchased the
common stock and/or options of the following public companies: InVision
Technologies, Inc.; Eon Labs, Inc.; Mylan, Inc.; Abgenix, Inc.; Aztar
Corporation; Veritas, DGC, Inc.; Mercantile Bankshares Corporation; Alcan,
Inc.; Ventana Medical Systems, Inc.; Pharmion Corporation; Take-Two
Interactive Software, Inc.; Anheuser-Busch, Inc.; and Rohm and Haas Company.
At the time that Devlin tipped the other defendants about these companies,
each company was confidentially engaged in a significant transaction that
involved a merger, tender offer, or stock repurchase.

The SEC's complaint names nine defendants as well
as three relief defendants. The U.S. Attorney's Office for the Southern
District of New York filed related criminal charges today against some of
the defendants named in the SEC's complaint.

The Service Employees International Union has long
boasted that it is on the cutting edge of the labor movement. But it found
itself badly embarrassed this week when it was linked by name to Gov. Rod R.
Blagojevich’s maneuvering to secure some financial gain from picking the
next Senator from Illinois.

The federal criminal complaint filed against Mr.
Blagojevich said his chief of staff, John Harris, had suggested to a service
employees’ official that the union should help make the governor the head of
Change to Win, the federation of seven unions that broke away from the A.F.L.-C.I.O.
The complaint said Mr. Blagojevich was seeking a position that paid $250,000
to $300,000 a year.

In exchange, the complaint strongly suggested, the
service employees union and Change to Win would help persuade Mr.
Blagojevich to name Valerie Jarrett, President-elect Barack Obama’s first
choice, as the state’s new senator. And the union would get help from the
Obama administration, presumably for its legislative agenda.

Several union officials in Chicago and Washington
said that the service employees official approached by Mr. Harris was Tom
Balanoff, the president of the union’s giant janitors’ local in Chicago and
head of the union’s Illinois state council. Mr. Balanoff, one of the union
officials closest to Mr. Obama, is widely seen as an aggressive, successful
labor leader, who has helped unionize thousands of janitors not just in the
Chicago area but also in Texas.

The Illinois branch of the service employees issued
a statement on Wednesday night saying, “We have no reason to believe that
S.E.I.U. or any S.E.I.U. official was involved in any misconduct.” It added
that the union and Mr. Balanoff “are fully cooperating with the federal
investigation.”

Greg Denier, Change to Win’s spokesman, said the
federation “had no involvement, no discussion, no contact” with Mr.
Blagojevich or his staff. “The idea of a position at Change to Win was
totally an invention of the governor, and his stance has no basis in
reality,” Mr. Denier said.

Mr. Denier noted that the presidency of Change to
Win was an unsalaried position. The federation’s president, Anna Burger, is
the service employees’ secretary treasurer and receives only her S.E.I.U.
salary.

Continued in article

Question
How did a grandmother help build the corruption case against the Democratic
Party political machine in Illinois?

The wide-ranging public corruption probe that led
to the arrest of Illinois Gov. Rod Blagojevich got its first big break when
a grandmother of six walked into a breakfast meeting with shakedown artists
wearing an FBI wire.

Pamela Meyer Davis had been trying to win approval
from a state health planning board for an expansion of Edward Hospital, the
facility she runs in a Chicago suburb, but she realized that the only way to
prevail was to retain a politically connected construction company and a
specific investment house. Instead of succumbing to those demands, she went
to the FBI and U.S. Attorney Patrick J. Fitzgerald in late 2003 and agreed
to secretly record conversations about the project.

Her tapes led investigators down a twisted path of
corruption that over five years has ensnared a collection of
behind-the-scenes figures in Illinois government, including Joseph Cari Jr.,
a former Democratic National Committee member, and disgraced businessman
Antoin "Tony" Rezko.

On Dec. 9, that path wound up at the governor's
doorstep. Another set of wiretaps suggested that Blagojevich was seeking to
capitalize on the chance to fill the Senate seat just vacated by
President-elect Barack Obama.

Many of the developments in Operation Board Games
never attracted national headlines. They involved expert tactics in which
prosecutors used threats of prosecution or prison time to flip bit players
in a tangle of elaborate schemes that Fitzgerald has called pay-to-play "on
steroids."

But now, Fitzgerald's patient strategy has led to
uncomfortable questions not only for Blagojevich but also for the powerful
players who privately negotiated with him, unaware that their conversations
were being monitored. Democratic Rep. Jesse L. Jackson Jr. faces queries
about his interest in the Senate seat, and key players in the Obama
presidential transition team -- White House Chief of Staff-designate Rahm
Emanuel and adviser Valerie Jarrett -- are being asked about their contacts
with the governor on the important appointment.

Pamela Meyer Davis had been trying to win approval
from a state health planning board for an expansion of Edward Hospital, the
facility she runs in a Chicago suburb, but she realized that the only way to
prevail was to retain a politically connected construction company and a
specific investment house. Instead of succumbing to those demands, she went
to the FBI and U.S. Attorney Patrick J. Fitzgerald in late 2003 and agreed
to secretly record conversations about the project.

Her tapes led investigators down a twisted path of
corruption that over five years has ensnared a collection of
behind-the-scenes figures in Illinois government, including Joseph Cari Jr.,
a former Democratic National Committee member, and disgraced businessman
Antoin "Tony" Rezko.

On Dec. 9, that path wound up at the governor's
doorstep. Another set of wiretaps suggested that Blagojevich was seeking to
capitalize on the chance to fill the Senate seat just vacated by
President-elect Barack Obama.

Many of the developments in Operation Board Games
never attracted national headlines. They involved expert tactics in which
prosecutors used threats of prosecution or prison time to flip bit players
in a tangle of elaborate schemes that Fitzgerald has called pay-to-play "on
steroids."

But now, Fitzgerald's patient strategy has led to
uncomfortable questions not only for Blagojevich but also for the powerful
players who privately negotiated with him, unaware that their conversations
were being monitored. Democratic Rep. Jesse L. Jackson Jr. faces queries
about his interest in the Senate seat, and key players in the Obama
presidential transition team -- White House Chief of Staff-designate Rahm
Emanuel and adviser Valerie Jarrett -- are being asked about their contacts
with the governor on the important appointment.

Old Fashioned Purchasing Executive Kickback Fraud: Where were the
auditors

I've had difficulty discovering what firm audited this company. Both external
and internal auditors generally give more attention to the purchasing
departments companies than any other department, because this department
historically in companies is the source of more frauds than most any other
department. In this particular company, the internal controls are blatantly out
of line. I wonder who audited this company.

A Ferrari-driving vice president of Fry's
Electronics Inc. who was allegedly such a heavyweight gambler that casinos
chartered private planes to fly him to Las Vegas, has been arrested on
charges he embezzled more than $65 million from the retailer to fuel his
lavish lifestyle and pay off debts.

Ausaf Umar Siddiqui is accused by the Internal
Revenue Service of concocting an incredibly profitable scheme in which he
cut side deals with some of Fry's suppliers, buying their goods at higher
prices than they would normally get, and buying more of them than he
normally would, in exchange for kickbacks of up to 31 percent of the total
sales price.

The IRS alleges in a criminal complaint filed
against Siddiqui that he set up a shell company that hid $65.6 million in
kickback payments from five Fry's vendors from January 2005 to November
2008. Of that amount, $17.9 million was paid to subsidiaries of Las Vegas
Sands Corp., which operates the Venetian Casino Resort, according to the
criminal complaint and regulatory filings. Authorities confirmed the
payments went to the casino.

Siddiqui, who lives in Palo Alto, California, was
ordered held on $300,000 bond Monday at a hearing in U.S. District Court in
San Jose. He has been in custody since Friday, when agents arrested him at
Fry's headquarters in San Jose in front of stunned co-workers. The details
about his Ferrari and the private jets came out during the hearing Monday.

His home phone number is unlisted, and it was not
immediately clear whether Siddiqui had a defense lawyer. A criminal
complaint is one of the preliminary investigative steps for arresting
someone and securing an indictment.

A Fry's spokesman did not return a phone call from
The Associated Press left after-hours.

Siddiqui has not been formally charged yet with the
wire-fraud allegations laid out in the criminal complaint. Arlette Lee,
spokeswoman for the IRS' Criminal Investigation division, said the judge in
the case has given the government 20 days to file formal charges, which she
said prosecutors intend to do.

As Fry's vice president of merchandising and
operations, Siddiqui pulled down a legitimate annual salary of $225,000,
supervised a staff of 120 and his team was responsible for buying all the
merchandise sold in Fry's 34 stores around the U.S., according to the
criminal complaint. The stores are mostly located in California and Texas.

The IRS alleges Siddiqui was able to amass so much
illegal money by convincing Fry's executives that he alone should be
responsible for a job that is typically handled by independent contractors -
the job of the sales representative that brokers deals with the suppliers
and the stores for a cut of the total sales price.

The reps are kept independent so they're not seen
as favoring one side or the other in sales negotiations, and their job can
be lucrative if they're good at it, with commissions ranging from 3 to 8
percent of the total sales they bring in, according to the complaint.

The IRS claims Siddiqui started striking side deals
with some of the suppliers, in which he would guarantee he'd keep their
products stocked on Fry's shelves, in exchange for kickbacks in the form of
steep commissions paid to a company he set up called PC International.

The alleged scheme unraveled when another Fry's
executive walked into Siddiqui's office in October and saw spreadsheets on
his desk outlining the payments and alleged kickbacks, according to the
complaint. Siddiqui was not there, so the executive took the documents,
contacted the IRS and handed over the evidence.

The IRS later examined Siddiqui's bank records and
found that a total of $167.8 million was deposited into the bogus company's
bank account. Seventy wire transfers totaling $65.6 million came from five
Fry's suppliers, who were not named as defendants in the case.

Eager to hire teachers for bilingual education
programs, the Dallas public school system assigned fake Social Security
numbers to newly hired foreigners so it could get them on the payroll
quickly, an internal investigation found.

The district continued the practice for years, the
investigation found, even after it was admonished by a state agency. It was
only halted this summer.

“The inappropriate procedure of assigning false
SSNs has been systemic,” investigators with the school district’s Office of
Professional Responsibility wrote in a report on the matter dated Sept. 25.

The Dallas Morning News ran an article on Friday
after obtaining the report, marked “highly confidential,” through a records
request.

A state education official said an investigation of
the practice was under way and that the Social Security Administration and
district attorney’s office were likely to be involved.

Jon Dahlander, a Dallas schools spokesman, said
Friday that the practice “was obviously inappropriate.” He added: “I think
the intention was good — they wanted to help the employees get paid. But you
cannot use inappropriate procedures to do that.”

The investigation identified 26 foreign citizens in
an alternative teacher-certification program who were given fake Social
Security numbers, contrary to district and state procedure, which called for
other identification measures.

The new employees were expected to apply for their
own Social Security numbers and to provide them to the school district as
soon as they received them.

The procedure was begun “as an expediency,” the
report said, “without consideration or thought of the impact of generating
false data.”

The false numbers prevented the state from
accurately performing criminal background checks, and Dallas school
employees routinely entered the false data on Department of Homeland
Security and Internal Revenue Service forms held in employee personnel
files, the investigators found.

The information would have been provided to federal
agencies if requested, but the investigators found no evidence that the
false numbers were given to the I.R.S. or the Social Security
Administration.

A state education official processing fingerprint
and background checks on the new teachers had discovered the practice in
2004 and advised the Dallas district that it was illegal.

“So we were shocked to learn today that Dallas
I.S.D. has continued to issue fraudulent Social Security numbers after we
admonished them to stop,” said Debbie Ratcliffe, communications director for
the Texas Education Agency.

The agency is updating its teacher records and
“examining applicable statutes to determine which, if any of them, have been
broken and what appropriate action to take,” Ms. Ratcliffe said.

The practice finally stopped in July, Mr. Dahlander
said. That was when the state teacher-certification board reported it to the
school district’s Office of Professional Responsibility.

It is unclear if the Dallas schools employees
realized the temporary numbers, all with a “200” prefix, had been assigned
to Pennsylvania residents. Mr. Dahlander said he did not believe any
Pennsylvania residents were affected.

This is also why the financial masters of the
universe tend not to write books. If you have been proved—proved—right, why
bother? If you need to tell it, you can’t truly know it. The story of David
Einhorn and Allied Capital is an example of a moneyman who believed, with
absolute certainty, that he was in the right, who said so, and who then
watched the world fail to react to his irrefutable demonstration of his own
rightness. This drove him so crazy that he did what was, for a hedge-fund
manager, a bizarre thing: he wrote a book about it.

The story began on May 15, 2002, when Einhorn, who
runs a hedge fund called Greenlight Capital, made a speech for a
children’s-cancer charity in Hackensack, New Jersey. The charity holds an
annual fund-raiser at which investment luminaries give advice on specific
shares. Einhorn was one of eleven speakers that day, but his speech had a
twist: he recommended shorting—betting against—a firm called Allied Capital.
Allied is a “business development company,” which invests in companies in
their early stages. Einhorn found things not to like in Allied’s accounting
practices—in particular, its way of assessing the value of its investments.
The mark-to-market accounting
that Einhorn favored is based on the price an asset would fetch if it were
sold today, but many of Allied’s investments were in small startups that
had, in effect, no market to which they could be marked. In Einhorn’s view,
Allied’s way of pricing its holdings amounted to “the
you-have-got-to-be-kidding-me method of accounting.” At the same time,
Alliedwas issuing new equity,
and, according to Einhorn, the revenue from this could
be used to fund the dividend payments that were keeping Allied’s investors
happy. To Einhorn, this looked like a potential
Ponzi scheme.

The next day, Allied’s stock dipped more than
twenty per cent, and a storm of controversy and counter-accusations began to
rage. “Those engaging in the current misinformation campaign against Allied
Capital are cynically trying to take advantage of the current post-Enron
environment by tarring a great and honest company like Allied Capital with
the broad brush of a Big Lie,” Allied’s C.E.O. said. Einhorn would be the
first to admit that he wanted Allied’s stock to drop, which might make his
motives seem impure to the general reader, but not to him. The function of
hedge funds is, by his account, to expose faulty companies and make money in
the process. Joseph Schumpeter described capitalism as “creative
destruction”: hedge funds are destructive agents, predators targeting the
weak and infirm. As Einhorn might see it, people like him are especially
necessary because so many others have been asleep at the wheel. His book
about his five-year battle with Allied, “Fooling Some of the People All
of the Time” (Wiley; $29.95), depicts analysts, financial journalists,
and the S.E.C. as being culpably complacent. The S.E.C. spent three years
investigating Allied. It found that Allied violated accounting guidelines,
but noted that the company had since made improvements. There were no
penalties. Einhorn calls the S.E.C. judgment “the lightest of taps on the
wrist with the softest of feathers.” He deeply minds this, not least because
the complacency of the watchdogs prevents him from being proved right on a
reasonable schedule: if they had seen things his way, Allied’s stock price
would have promptly collapsed and his short selling would be hugely
profitable. As it was, Greenlight shorted Allied at $26.25, only to spend
the next years watching the stock drift sideways and upward; eventually, in
January of 2007, it hit thirty-three dollars.

All this has a great deal of resonance now,
because, on May 21st of this year, at the same charity event, Einhorn
announced that Greenlight had shorted another stock, on the ground of the
company’s exposure to financial derivatives based on dangerous subprime
loans. The company was Lehman Brothers. There was little delay in Einhorn’s
being proved right about that one: the toppling company shook the entire
financial system.A global cascade of bank
implosions ensued—Wachovia, Washington Mutual, and the Icelandic banking
system being merely some of the highlights to date—and a global bailout of
the entire system had to be put in train. The
short sellers were proved right, and also came to be seen as culprits; so
was mark-to-market accounting, since it caused sudden, cataclysmic drops in
the book value of companies whose holdings had become illiquid. It is
therefore the perfect moment for a short-selling advocate of marking to
market to publish his account. One can only speculate whether Einhorn would
have written his book if he had known what was going to happen next. (One of
the things that have happened is that, on September 30th, Ciena Capital, an
Allied portfolio company to whose fraudulent lending Einhorn dedicates many
pages, went into bankruptcy; this coincided with a collapse in the value of
Allied stock—finally!—to a price of around six dollars a share.) Given the
esteem with which Einhorn’s profession is regarded these days, it’s a little
as if the assassin of Archduke Franz Ferdinand had taken the outbreak of the
First World War as the timely moment to publish a book advocating
bomb-throwing—and the book had turned out to be unexpectedly persuasive.

The American settlement includes a $350 million payment to the Securities and
Exchange Commission to settle allegations of accounting
rule violations, which Siemens neither admitted nor denied. Siemens falls
under American jurisdiction because its shares are listed in New York. Siemens
pleaded guilty to circumventing and failing to maintain adequate internal
controls, a requirement of the antibribery law, and will pay $450 million to the
Justice Department. Three Siemens subsidiaries also pleaded guilty to more
specific charges.

Siemens, the German engineering conglomerate,
closed the book on Monday on wide-ranging criminal investigations in the
United States and Germany by agreeing to pay a record $1.34 billion in fines
to settle cases accusing it of bribery around the world.

In Washington, Siemens’s general counsel, Peter
Solmssen, signed an $800 million settlement with the Department of Justice
and the Securities and Exchange Commission to end an inquiry into possible
violations of the Foreign Corrupt Practices Act. The fine is, by a colossal
margin, the largest ever imposed under the antibribery legislation, now 31
years old.

Munich prosecutors, whose trailblazing work
revealed the outlines of a huge system of slush funds and illegal payments,
also announced a deal with Siemens that would cost the company 395 million
euros , or $540 million.

German authorities are still looking into potential
wrongdoing by former Siemens employees that could result in criminal
charges.

Crucially, Siemens avoided either a guilty plea or
a conviction for bribery, allowing it to maintain its status as a
“responsible contractor” with the United States Defense Logistics Agency.
Without this benchmark certification, Siemens could have been excluded from
public procurement contracts in the United States and elsewhere. German
authorities are preparing a similar certification.

The fine in the United States was nearly 17 times
more than the next-largest imposed for overseas commercial bribery. Yet it
still represents victory for Siemens, because it is far below what might
have been levied under the Justice Department’s guidelines.

With $1.36 billion identified as potentially
corrupt payments worldwide, a fine of up to $2.7 billion would have been
possible. But American authorities said in court papers filed in Washington
that they were impressed by the company’s efforts to identify wrongdoing and
prevent new occurrences.

“Compared to other cases that have been brought, we
have been dealt with very fairly,” Mr. Solmssen of Siemens said in a
telephone interview.

The next-highest fine imposed by American
authorities for bribery was $48 million, paid by the oil field services
company Baker Hughes in 2007.

Shares of Siemens, based in the southern German
city of Munich, initially rallied on the news, which was lower than what
investors had anticipated as settlement talks entered their final phase this
autumn. But the shares later fell lower in Frankfurt, ending at 47.15 euros,
down 23 euro cents. On the New York Stock Exchange, the American depository
receipts of Siemens gained 55 cents, to $64.47.

“Before Siemens started giving hints, we would have
expected much more,” said Roland Pitz, an analyst at UniCredit in Munich.
“The employees must be celebrating.”

Gerhard Cromme, the Siemens chairman — who had to
juggle the sudden departure of a chief executive as a result of the crisis,
and a two-year distraction from its core business of manufacturing energy,
medical and other industrial equipment, — allowed himself just a few smiles
as he announced the deals in Munich.

“Siemens is closing a painful chapter in its
history,” Mr. Cromme said at a news conference.

The American settlement includes a $350 million
payment to the Securities and Exchange Commission to settle allegations of
accounting rule violations, which Siemens neither admitted nor denied.
Siemens falls under American jurisdiction because its shares are listed in
New York.

Siemens pleaded guilty to circumventing and failing
to maintain adequate internal controls, a requirement of the antibribery
law, and will pay $450 million to the Justice Department. Three Siemens
subsidiaries also pleaded guilty to more specific charges.

The Siemens approach was also striking for its
alacrity. The Baker Hughes settlement took five years to reach, but Siemens,
determined to end a persistent distraction to a new management team, pulled
off a settlement in less than two.

Munich prosecutors are still investigating former
Siemens employees and say they have not ruled out criminal charges. So far,
they have leveled only minor charges of failing to effectively supervise the
company against two former chief executives, Heinrich von Pierer and Klaus
Kleinfeld, which could result at most in fines.

“This investigation will continue as planned and
might take considerable time,” Christian Schmidt-Sommerfeld, the lead Munich
prosecutor, said in a statement on Monday.

But the company itself is no longer in danger of
being charged.

“We have wrapped up all of the potential claims
against Siemens arising out of the alleged conduct in both countries,” Mr.
Solmssen said.

The SEC imposed sanctions onBrendan E.
Murray, formerly a managing director of registered
investment advisor Cornerstone Equity Advisers, Inc. (Cornerstone) and
secretary to Cornerstone's advisory clients the Cornerstone Funds, Inc.
(Funds), for willfully aiding and abetting, and being a cause of,
Cornerstone's violations of antifraud provisions of the Investment Advisers
Act of 1940. Cornerstone, a fiduciary to the Funds, misappropriated client
funds by knowingly inflating and falsifying vendor invoices, directing the
payments of the inflated amounts to an intermediary, and instructing the
intermediary to pay the vendors lesser amounts (or nothing) while keeping
the overage. The Commission found that Murray participated in the scheme by
creating, submitting, and authorizing payment of the inflated invoices. The
Commission also found that Murray, who as secretary owed a fiduciary duty to
the Funds, converted corporate funds by knowingly submitting inflated
invoices for reimbursement. The Commission concluded that it is in the
public interest to bar Murray from associating with any investment adviser
or investment company, to impose a cease-and-desist order, to impose a civil
money penalty in the amount of $60,000, and to order disgorgement in the
amount of $21,157 plus prejudgment interest.

The gleaming, state-of-the-art, 30-story office
tower in downtown San Jose, Calif., hardly looks like the staging ground for
a full-scale cyber crime offensive against America. But security experts say
a relatively small Web hosting firm at that location is home to servers that
help manage the distribution of the majority of the world's junk e-mail.

The servers are owned by McColo
Corp, a Web hosting company that has emerged as a major U.S. base of
operations for a host of international cyber-crime syndicates, involved in
everything from the remote management of millions of compromised PCs to the
sale of counterfeit pharmaceuticals and designer goods, fake security
products and child pornography.

Multiple security researchers have recently
published data naming McColo as a mother ship for all of the top robot
networks or "botnets," which are vast collections of hacked computers that
are networked together to blast out spam or attack others online.

Joe Stewart, director of malware
research for Atlanta based SecureWorks, said that these known criminal
botnets: "Mega-D,"
"Srizbi,"
"Pushdo,""Rustock"
and "Warezov,"
have their master servers hosted at McColo.

Collectively, these botnets are responsible for
sending roughly 75 percent of all spam each day, according to the latest
stats from Marshal, a security company in the United Kingdom that tracks
botnet activity.

Vincent Hanna, a researcher for the anti-spam
group Spamhaus.org, said Spamhaus sees roughly 1.5 million computers
infected with either Srizbi or Rustock sending spam over an average one-week
timeframe.

Hanna said McColo has for years been the source
of botnet and other cyber-criminal activity, and that it has a reputation as
one of the most dependable players in the so-called "bulletproof hosting"
business, which are Web servers that will remain online regardless of
complaints.

"These are serious issues, almost all relating to
the very core of spammer infrastructure," he said.

Officials from McColo did not respond to multiple
e-mails, phone calls and instant messages left at the contact points listed
on the company's Web site. But within hours of being presented with evidence
from the security community about illegal activity coming from McColo's
network, the two largest Internet providers for the company decided to pull
the plug on McColo late Tuesday.

Global Crossing, a Bermuda-based company with U.S.
operations in New Jersey, declined to discuss the matter, except to say that
Global Crossing communicates and cooperates fully with law enforcement,
their peers, and security researchers to address malicious activity.

Benny Ng, director of marketing for Hurricane
Electric, the Fremont, Calif., company that was the other major Internet
provider for McColo, took a much stronger public stance.

"We shut them down," Ng said. "We looked into it a
bit, saw the size and scope of the problem [washingtonpost.com was]
reporting and said 'Holy cow!' Within the hour we had terminated all of our
connections to them."

The former chief executive of Enron Broadband
Services pleaded guilty today to one felony count of wire fraud rather than
risk a second jury trial.

Joseph Hirko, 52, of Portland, Ore., will serve no
more than 16 months in prison and must pay $8.7 million in restitution for
Enron victims. He also agreed to cooperate in other broadband prosecutions.
Sentencing is set for March 3.

Hirko admitted to allowing press releases to be
distributed in 2000 that said a groundbreaking operating system had been
embedded in Enron's broadband network that would allow users to pay only for
bandwidth they used instead of a flat monthly fee. The operating system was
still being developed, however, and never materialized.

In accepting the plea deal, U.S. District Judge
Vanessa Gilmore issued a stern, civics reminder to Hirko, the Houston
Chronicle said.

''Mr. Hirko, let me remind you that as a convicted
felon, you may not vote in the upcoming election,'' Gilmore said. ''Don't
make that mistake.''

A Waterbury Superior Court judge has ruled in favor
of a New Milford man expelled from Central Connecticut State University in
2006 for cheating. In a decision issued late Wednesday, Judge Jane Scholl
cited a preponderance of evidence supporting Matthew Coster's claim that it
was another student, Cristina Duquette of Watertown, who took Coster's term
paper on the holocaust, not the other way around.

Coster and his family brought the civil suit
against Duquette to clear his name and recoup the over $25,000 they spent
pursuing the case. CCSU officials have said they would reconsider their
decision pending the outcome of the suit but to date nothing has been
scheduled.

Continued in article

Jensen Comment
What I found interesting is the fact that the student named Matthew Costner was
expelled for a first-time offense. Most colleges are not currently expelling a
student for the first-time plagiarizing of a term paper.

From day one of the Obama era, union leaders want
the lights dimmed on how they spend their mandatory member dues. The AFL-CIO's
representative on the Obama transition team for Labor is Deborah Greenfield, and
we're told her first inspection stop was the Office of Labor-Management
Standards, or OLMS, which monitors union compliance with federal law. Ms.
Greenfield declined to comment, citing Obama transition rules, but her mission
is clear enough. The AFL-CIO's formal "recommendations" to the Obama team call
for the realignment of "the allocation of budgetary resources" from OLMS to
other Labor agencies. The Secretary should "temporarily stay all financial
reporting regulations that have not gone into effect," and "revise or rescind
the onerous and unreasonable new requirements," such as the LM-2 and T-1
reporting forms. The explicit goal is to "restore the Department of Labor to its
mission and role of advocating for, protecting and advancing the interests of
workers." In other words, while transparency is fine for business, unions are
demanding a pass for themselves.
"Quantum of Solis Big labor wants Obama to dilute union disclosure rules,"
The Wall Street Journal, December 21, 2008 ---
http://online.wsj.com/article/SB122990431323225179.html?mod=djemEditorialPage

J.V. Huffman Jr. confessed to scamming hundreds of
investors out of millions of dollars, according to documents released
Thursday by the U.S. Securities and Exchange Commission.

In a civil action lawsuit filed in federal court
Wednesday by the SEC against the Huffman and his company, the Biltmore
Financial Group Inc., the SEC said Huffman conducted a Ponzi scheme, pulling
in 500 people in North Carolina and other states since 1991.

He raised about $25 million from these investors,
who initially believed they were investing in a mutual fund. After Sept. 11,
2001, Huffman expanded his claims, and told investors the Biltmore Financial
pooled investors' money to purchase and sell mortgages for a profit.

Huffman confessed to authorities a week ago, when
the N.C. Secretary of State's office searched his home on Wishing Well Lane
in Claremont, according to a release from the SEC. He told authorities he
never invested the funds the investors gave his company, Biltmore Financial,
and said he used new investor funds to pay the profits of earlier investors.
Some funds were used for his lavish lifestyle, including an Aston Martin
convertible, a $1 million RV, renovations to his home, vacations and rental
properties.

"In a tragic example of the way a fraudster
operates a Ponzi scheme, Huffman deceived neighbors and members of his
church and religious community, as well as strangers, to finance his
extravagant way of life," said Katherine Addleman, director of the SEC's
Atlanta, Ga., regional office. "Huffman lied to get investors' trust and
then spent their invested funds on fancy cars and vacation homes."

Huffman's wife, Gilda, was named as a relief
defendant in the civil suit, so assets filed under both names could be
attained, according to officials with the SEC.

An order also was filed in federal court Wednesday
to appoint a receiver and freeze all of Huffman's and Biltmore Financial's
assets. These include assets, money, securities and properties. A receiver's
job is to take control of assets and ensure they're protected. Walt Pettit,
of Kellam and Pettit in Charlotte, was appointed as the receiver.

According to the order, Pettit has the authority to
manage, control and operate Huffman's estate. He can use the income,
earnings and profits of the estate to take into possession any goods, money,
lands, books or record of accounts, data or materials, conduct the business
operations of Biltmore Financial and the properties they control and make
any payments or dispose of assets as necessary. Pettit also can receive and
collect money owed to Biltmore Financial and Huffman, and can renew or
cancel lease agreements.

As the receiver, Pettit must file a preliminary
report with the court within 45 days of the order, identifying the location
and values of Huffman's and Biltmore Financial's assets, and any liabilities
he had.

The receiver also is the individual who will
ultimately decide how Huffman's profits will be divided up.

The order also states that funds be frozen, with
the exception of $15,000 for living expenses for the Huffmans for one month.
After one month, Huffman can apply to the court with a signed, sworn
statement of financial condition for the amount they need for ordinary
living expenses.

The scheme:

Since 1991, J.V. Huffman Jr. operated Biltmore
Financial Group Inc. Investors gave him $1,000 or more, and were told the
money would be invested in a mutual fund.

After Sept. 11, 2001, Huffman changed his claims to
investors by saying profits were generated by buying and selling mortgages.
Profits fluctuated at market rates, but were guaranteed "never to drop below
0.00 percent."

Investors received monthly or quarterly reports,
and were told they could withdraw their money without penalty in no more
than 30 days. Biltmore Financial said its "approach is very conservative and
tries to provide a healthy return at no risk."

According to the Biltmore Financial Group Company
Dossier, which was sent to investors, interest rates paid to investors
ranged from 8.02 percent one year to as high as 16.54 percent in 2007. In
Huffman's first year, 1991, interest was 10.15 percent.

Other information provided to investors stated that
"measures are taken to insure against any loss. Included but not limited to
various forms of insurance from: State Farm, Thrivent Financial, American
Express, Asset Guarantee, Securities Investor Protection Corporation." It
also states the company's assets are insured and secured by the FDIC, SIPC
and Thrivent Financial Services.

Oct. 16, 2008 (The Seattle Times) — U.S. Attorney
Jeffrey Sullivan's office [Wednesday] announced that it is conducting an
investigation of Washington Mutual and the events leading up to its takeover
by the FDIC and sale to JP Morgan Chase.

Said Sullivan in a statement: "Due to the intense
public interest in the failure of Washington Mutual, I want to assure our
community that federal law enforcement is examining activities at the bank
to determine if any federal laws were violated."

Sullivan's office asks that anyone with information
for the task force call 1-866-915-8299; or e-mail fbise@leo.gov.

"For more than 100 years Washington Mutual was a
highly regarded financial institution headquartered in Seattle," Sullivan
said. "Given the significant losses to investors, employees, and our
community, it is fully appropriate that we scrutinize the activities of the
bank, its leaders, and others to determine if any federal laws were
violated."

WaMu was seized by the FDIC on Sept. 25, and its
banking operations were sold to JPMorgan Chase, prompting a Chapter 11
bankruptcy filing by Washington Mutual Inc., the bank's holding company. The
takeover was preceded by an effort to sell the entire company, but no firm
bids emerged.

The Associated Press reported Sept. 23 that the FBI
is investigating four other major U.S. financial institutions whose collapse
helped trigger the $700 billion bailout plan by the Bush administration.

The AP report cited two unnamed law-enforcement
officials who said that the FBI is looking at potential fraud by
mortgage-finance giants Fannie Mae and Freddie Mac, and insurer American
International Group (AIG). Additionally, a senior law-enforcement official
said Lehman Brothers Holdings is under investigation. The inquiries will
focus on the financial institutions and the individuals who ran them, the
senior law-enforcement official said.

FBI Director Robert Mueller said in September that
about two dozen large financial firms were under investigation. He did not
name any of the companies but said the FBI also was looking at whether any
of them have misrepresented their assets.

The
federal government is
investigating whether the
leadership of shuttered bank
Washington Mutual broke
federal laws in the run-up
to its collapse,
the largest in U.S. history.

. . .

Eighty-nine former WaMu
employees are confidential witnesses in a
shareholder class action lawsuit against
the bank, and some former insiders
spoke exclusively to ABC News,
describing their claims that
the bank ignored key advice from its own risk
management team so they could maximize profits
during the housing boom.

In court documents, the
insiders said the company's risk managers, the
"gatekeepers" who were supposed to protect the bank
from taking undue risks, were ignored, marginalized
and, in some cases, fired. At the same time, some of
the bank's lenders and underwriters, who sold
mortgages directly to home owners, said they felt
pressure to sell as many loans as possible and push
risky, but lucrative, loans onto all borrowers,
according to insiders who spoke to ABC News.

Continued in article

Allegedly "Deloitte Failed to Audit WaMu in Accordance with GAAS" (see
Page 351) ---
Click Here
Deloitte issued unqualified opinions and is a defendant in this lawsuit (see
Page 335)
In particular note Paragraphs 893-901 with respect to the alleged negligence of
Deloitte.

Creditors of Lehman Brothers’ international
business, arriving at London’s gigantic O2 concert hall on Friday, had no
illusions about getting their money back any time soon.

In a three-hour meeting in a hall usually reserved
for rock bands like the Who, Lehman’s administrators explained to about
1,000 creditors that dismantling the bank’s European business would take
“many years.”

This is at least “ten times more complex than
Enron,” the administrators from PricewaterhouseCoopers said, adding that
they had no idea what the company’s total liabilities may be.

“It’s frustrating that after nine weeks, we still
haven’t come to any clarity,” especially on how much counterparties hold
with Lehman’s European business, said Tony Lomas, the PricewaterhouseCoopers
partner leading the administration. “The prospect is that the creditors will
lose money.”

PricewaterhouseCoopers identified 11,500 creditors
and counterparties of Lehman’s European business, ranging from the coffee
machine maker Nespresso and taxi companies in Milan and Zurich to Bulgari
hotels and resorts and the financial news company Bloomberg.

From Lehman’s glass and steel offices in London’s
Canary Wharf, the administrators are working through the bank’s $1 trillion
of assets and said they cannot pay creditors until they have a “reasonable
grip” on liabilities.

Continued in article

Investigators have subpoenaed Ernst & Young LLP, Lehman's auditor;
U.K.-based bank Barclays Plc, which bought Lehman's North American brokerage;
and the New Jersey Division of Investments, which runs a pension fund that lost
$115.6 million on a $180 million investment in the June stock sale, according to
people familiar with the case.
Linda Sandler and Christopher Scinta, "Lehman's
Collapse, Stock Sale Probed by Three U.S. Prosecutors ," Bloomberg,
October 18, 2008 ---
http://www.bloomberg.com/apps/news?pid=20601087&sid=ai0XSrkkEKEM&refer=worldwide

The San Mateo County (Calif.) Investment Pool sued
executives of bankrupt Lehman Brothers Holdings Inc. (LEHMQ) and their
accountants, accusing them of fraud, deceit and misleading accounting
practices that led to the loss of more than $150 million in county funds.

The suit, filed in San Francisco Superior Court,
said executives of the former Wall Street investment bank made repeated
public statements about its financial strength while privately scrambling to
save it from collapse.

It accused Lehman of hiding its exposure to
mortgage-related losses while reporting record profits for fiscal year 2007
and giving bonuses to its executives.

"The defendants focused their efforts on trying to
save their company and their jobs with little or no regard to how their
egregious actions harmed those who in good faith invested in Lehman
Brothers," said San Mateo County Counsel Michael Murphy. "In our view, their
actions were blatantly illegal."

The San Mateo County Investment Pool consists of
the county, school districts, special districts and other public agencies in
the county.

San Mateo County Supervisors Richard Gordon and
Rose Jacobs Gibson called for a federal investigation of the allegations in
the suit, and Supervisor Jerry Hill, newly elected to the state Assembly,
will request hearings on how many California public entities face similar
losses.

Representatives of Lehman and of Ernst & Young were
not immediately available to comment.

From foolish fibs to full-on fraud, lying on your
résumé is one of the most common ways that people stretch the truth. But
think twice before you ship off your next half-baked job application. Even
if your moral compass doesn't keep you from deceit, the fact that human
resources is on to the game should.

The percentage of people who lie to potential
employers is substantial, says Sunny Bates, CEO of New York-based executive
recruitment firm Sunny Bates Associates. She estimates that 40% of all
résumés aren't altogether aboveboard.

And this game of employment Russian roulette is
getting riskier and riskier. Almost 40% of human resources professionals
surveyed last year by the Society for Human Resource Management reported
they've increased the amount of time they spend checking references over the
past three years.

Executive Lies About His MBA from the University of Southern CaliforniaOfficials at the University of Southern California --
responding to an inquiry from the Journal -- told the company it had no record
that Mr. Lanni had earned a master's degree in business administration from the
school. A corporate biography of Mr. Lanni on MGM Mirage's Web site says he
holds an MBA in finance from USC. Mr. Lanni is a longtime patron of USC, joining
boards and speaking at the school over the years, Mr. Murren and others said.
For example, he is currently a member of the Board of Overseers of USC's Keck
School of Medicine. The university contacted MGM Mirage on Wednesday following
the Journal's inquiries about a recent discovery by Barry Minkow, a private
fraud investigator in San Diego, of a discrepancy between Mr. Lanni's corporate
biography and a database of college degrees accessible to private investigators.
(Please
see related article.) Mr. Minkow said he has no
investment position in MGM Mirage, but one of his employees has bought "put"
options betting against the company's stock.
"MGM Mirage CEO to Resign Amid Questions About MBA," by Keith J. Winstein and
Tamara Audi, The Wall Street Journal, The Wall Street Journal, November
14, 2008 ---
http://online.wsj.com/article_email/SB122661583489225999-lMyQjAxMDI4MjE2NDYxMTQ1Wj.html

Jensen Comment
An anonymous tip revealed that Lanni was a major fund raiser at one time for the
USC School of Accountancy. Although Lanni has claimed on his resume that he has
a BS in speech, it turns out that he does have a BS in Business (not from the
USC School of Accountancy where he was a fund raiser).

In terms of wealth Lanni can still claim he gambled and won at the MGM Mirage
in Las Vegas.

WILMINGTON, DEL. (CN) -
Deloitte & Touche says a 30-year partner traded on inside information he
got from audits, and lied about it for years. It sued Thomas P. Flanagan
in Chancery Court. Flanagan "for 30 years was a partner" in Deloitte &
Touche or a predecessor "until his abrupt resignation less than two
months ago," Deloitte claims. It says he betrayed his trust and violated
company policy by trading in securities of audit clients, including some
of his own accounts, since 2005. "Compounding his wrongdoing, Flanagan
repeatedly lied to Deloitte about his clandestine trading activities in
annual written certifications, going to far as to conceal the existence
of a number of his brokerage accounts to avoid detection of his improper
conduct," Deloitte says. It says that both Deloitte and its clients have
had to pay legal costs to investigate Deloitte's ability to continue as
independent auditor, due to Flanagan's shenanigans. It seeks monetary
damages. The complaint does not state, or estimate, how much Flanagan
made from his alleged inside trades. Deloitte says that it still does
not know the extent of them. Deloitte & Touche is represented by Paul
Lockwood with Skadden Arps.

Here's a little more information. This is from the most recent 10-Q for
USG. I understand that similar approaches were used in the other cases where
this occurred.

Note that the person in question was the "advisory partner" rather than
engagement partner or concurring partner. Most of the large firms use senior
partners in a similar "relationship management" way. So the person wouldn't
necessarily have been involved in detailed auditing or review, but he might
have been involved if there were significant judgmental issues that the
engagement team needed to resolve. In this case it looks like D&T decided
that wasn't the case.

Denny

ITEM 5. OTHER INFORMATION
Since 2002, Deloitte & Touche LLP has served as the independent registered
public accountants with respect to our financial statements. In September
2008, Deloitte advised us that they believed a member of Deloitte’s client
service team that serves us had entered into two option trades involving our
securities in July 2007. This individual had served as the advisory partner
on Deloitte’s client service team for us from 2004 until September 2008. The
advisory partner is no longer an active partner at Deloitte. Under the
Deloitte client service model as we understand it, the role of an advisory
partner is primarily to serve in a client-relationship maintenance and
assessment role. Securities and Exchange Commission rules require that we
file annual financial statements that are audited by registered independent
public accountants. SEC rules also provide that when a partner serving in a
capacity such as that of this advisory partner has an investment in
securities of an audit client, the audit firm should not be considered
independent with respect to that client. Based on our review of the former
advisory partner’s role and activities, we do not believe that he had any
substantive role or influenced any substantive portion of any audit or
review of our financial statements. The former advisory partner attended
many, but not all, of our audit committee meetings. At these meetings, he
reviewed with the committee reports of the annual inspection of Deloitte
conducted by the Public Company Accounting Oversight Board as well as
Deloitte’s annual client service assessments. He did not review any
substantive audit matters with the committee at any of these meetings or at
any other time. The former advisory partner also met once or twice a year
with our audit committee chair and once per year with the other members of
our audit committee as well as our chief executive officer and chief
financial officer. The stated purpose of these meetings was to foster and
strengthen Deloitte’s ongoing relationship with us. The former advisory
partner attended our annual meetings of shareholders as one of the Deloitte
representatives attending those meetings. Neither the former advisory
partner nor any other Deloitte representatives spoke at any of these
meetings and no questions were asked of Deloitte. At the direction of our
audit committee, we conducted an extensive investigation into the facts and
circumstances of the extent of any involvement of the former advisory
partner with our audit. We retained outside counsel and a consulting firm
specializing in accounting issues to assist in this investigation. Outside
counsel led the process and conducted personal interviews with the current
and former lead client service partners, the concurring review partner, the
current and former senior managers on our account and the tax matters
partner, as well as the members of our audit committee and key members of
our internal finance and accounting departments, including our chief
financial

The American International Group is rapidly running
through $123 billion in emergency lending provided by the Federal Reserve,
raising questions about how a company claiming to be solvent in September
could have developed such a big hole by October. Some analysts say at least
part of the shortfall must have been there all along, hidden by irregular accounting.

Mr. Vickrey says he believes A.I.G. must have
already accumulated tens of billions of dollars worth of losses by
mid-September, when it came close to collapse and received an $85 billion
emergency line of credit by the Fed. That loan was later supplemented by a
$38 billion lending facility.

But losses on that scale do not show up in the
company’s financial filings. Instead, A.I.G. replenished its capital by
issuing $20 billion in stock and debt in May and reassured investors that it
had an ample cushion. It also said that it was making its accounting more
precise.

Mr. Vickrey and other analysts are examining the
company’s disclosures for clues that the cushion was threadbare and that
company officials knew they had major losses months before the bailout.

Tantalizing support for this argument comes from
what appears to have been a behind-the-scenes clash at the company over how
to value some of its derivatives contracts. An accountant brought in by the
company because of an earlier scandal was pushed to the sidelines on this
issue, and the company’s outside auditor, PricewaterhouseCoopers, warned of
a material weakness months before the government bailout.

The internal auditor resigned and is now in
seclusion, according to a former colleague. His account, from a prepared
text, was read by Representative Henry A. Waxman, Democrat of California and
chairman of the House Committee on Oversight and Government Reform, in a
hearing this month.

These accounting questions are of interest not only
because taxpayers are footing the bill at A.I.G. but also because the
post-mortems may point to a fundamental flaw in the Fed bailout: the money
is buoying an insurer — and its trading partners — whose cash needs could
easily exceed the existing government backstop if the housing sector
continues to deteriorate.

Edward M. Liddy, the insurance executive brought in
by the government to restructure A.I.G., has already said that although he
does not want to seek more money from the Fed, he may have to do so.

Continuing Risk

Fear that the losses are bigger and that more
surprises are in store is one of the factors beneath the turmoil in the
credit markets, market participants say.

“When investors don’t have full and honest
information, they tend to sell everything, both the good and bad assets,”
said Janet Tavakoli, president of Tavakoli Structured Finance, a consulting
firm in Chicago. “It’s really bad for the markets. Things don’t heal until
you take care of that.”

A.I.G. has declined to provide a detailed account
of how it has used the Fed’s money. The company said it could not provide
more information ahead of its quarterly report, expected next week, the
first under new management. The Fed releases a weekly figure, most recently
showing that $90 billion of the $123 billion available has been drawn down.

A.I.G. has outlined only broad categories: some is
being used to shore up its securities-lending program, some to make good on
its guaranteed investment contracts, some to pay for day-to-day operations
and — of perhaps greatest interest to watchdogs — tens of billions of
dollars to post collateral with other financial institutions, as required by
A.I.G.’s many derivatives contracts.

No information has been supplied yet about who
these counterparties are, how much collateral they have received or what
additional tripwires may require even more collateral if the housing market
continues to slide.

Ms. Tavakoli said she thought that instead of
pouring in more and more money, the Fed should bring A.I.G. together with
all its derivatives counterparties and put a moratorium on the collateral
calls. “We did that with ACA,” she said, referring to ACA Capital Holdings,
a bond insurance company that was restructured in 2007.

Of the two big Fed loans, the smaller one, the $38
billion supplementary lending facility, was extended solely to prevent
further losses in the securities-lending business. So far, $18 billion has
been drawn down for that purpose.

First and foremost it gets to a serious question.
Were the initial infusions (into AIG) by the government just a stop gap
measure and will even more be needed. (The idea of throwing good money after
bad comes to mind). Secondly in class yesterday we talked about information
asymmetries and how accounting can only partially lessen the problem and
that firms can have billions of dollars of losses that investors may not be
aware of even after reading the financial statements. And finally a student
in class is doing a paper on this and what the executives must have known
(or at least should have known) before hand.

If AIG executives knew about these problems
early on, what did the auditor not insist on disclosing?
Sounds like a massive class action lawsuit here for AIG shareholders who lost
their investments.
Bob Jensen's threads on PwC auditors are at
http://www.trinity.edu/rjensen/Fraud001.htm

Although PwC is the newly designated auditor of the Bailout Program,
appearances of conflict of interest just keep increasing since a huge and
controversial recipient of Bailout funds is not only a PwC client, the recipient
has now been convicted of accounting fraud dating back to Year 2000.

Will government bailout money be used to pay AIG's court settlements?

"A federal judge has ruled that shareholders of American International Group
Inc. lost more than $500 million as a result of a scheme to manipulate the
financial statements of the world's largest insurance company," AccountingWeb,
November 3, 2008 ---
http://accounting.smartpros.com/x63720.xml

A federal judge has ruled that shareholders of
American International Group Inc. lost more than $500 million as a result of
a scheme to manipulate the financial statements of the world's largest
insurance company.

The ruling Friday by Judge Christopher Droney means
five former insurance executives convicted of the scheme could face up to
life in prison under advisory sentencing guidelines.

Four former executives of General Re Corp. and a
former executive of AIG were convicted in February of conspiracy, securities
fraud, mail fraud and making false statements to the Securities and Exchange
Commission.

They cited another methodology by the expert that
put the losses at $544 million to $597 million, but said either method is
reasonable.

Droney rejected the higher estimate, but said the
lower range was reasonable. That finding and a determination that the fraud
affected more than 250 victims will increase the advisory guideline sentence
range.

The guideline range and a sentencing date have not
been set yet.

The defendants challenged the estimate, saying
there was no loss to investors. The defendants are Christopher Garand,
Ronald Ferguson, Elizabeth Monrad, Robert Graham and Christian Milton.

Ferguson has said in court papers that he
anticipated the government will advocate a loss amount that leads to a
recommendation for life in prison. But prosecutors made no such
recommendation, simply concluding that the defendants should receive a
"substantial" prison sentence.

A report by the probation department recommended
sentences of 14 years to more than 17 years for each defendant.

Prosecutors said the defendants participated in a
scheme in which AIG paid Gen Re as part of a secret side agreement to take
out reinsurance policies with AIG in 2000 and 2001, propping up its stock
price and inflating reserves by $500 million.

Reinsurance policies are backups purchased by
insurance companies to completely or partly insure the risk they have
assumed for their customers.

General Re is part of Berkshire Hathaway Inc.,
which is led by billionaire investor Warren Buffett of Omaha, Neb.

Jensen Comment
Just for the record --- I’m not the only one raising concerns about independence
of the Bailout consultant and auditor, I provide reference to the following
published in CFO.com:

I am very troubled that
the government has chosen PwC as one of the firms to help with the internal
controls on the $700b bail out which included AIG. PWC just recently agreed to
one of the largest settlements in the public accounting history over a
class-action law suit because of their carelessness in auditing AIG. What
happened to the Sarbanes-Oxley requirements? Where were the auditors,
controllers and CFO?s of these companies requiring the bailout? Something is
fundamentally wrong. I fully agree with Lynn Turner, former CFO and former chief
accountant of the SEC on the recent quote:

When you look at the past and see where auditors didn't get the job done right,
there were indicators that they didn't pay attention to,". "Auditors are going
to need to take off the blinders."

I was a former PwC employee and always thought highly of the caliber of training
and values they taught me. In the last decade or so, however, public accounting
firms are more worried about the bottom line than the significant value the
profession can bring to troubled companies.

I hope there are no
conflicts of interest, such as independence issues, of PwC, and Ernst and
Young auditing the USA Federal Treasury while also consulting on accounting
and internal control areas. The latter is indicated in the article. The
auditing is not.

Though some research indicates that the Government Accountability Office
(GA) audits the Federal Treasury. Now the million dollar question: who
audits the GAO?

All of the comments published may be dysfunctional
at this point to our profession at this moment. I will not deliberately continue
my search for evidence that other people in the world are raising the same
concerns about independence of the Bailout auditor and consultant.

Auditing has a huge image
problem since all of the failed and failing banks (with Washington Mutual
perhaps being the worst-case illustration) had clean audit reports prior to
failing and wiping out shareholder equity. Even if the CPA Profession finds
reasons and excuses for those clean opinions, the image of independence and
value added by an audit is badly tarnished at this point. Paying those same
auditing firms giving those clean opinions for failed banks millions of dollars
in the government’s subsequent bailing out of PwC and E&Y banking clients
seemingly adds to the tarnish at this point in time.

Although AIG, that is now dependent upon billions in the
government's Bailout Program in order to survive, AIG will have to come up with
another $500 million from somewhere following the judge's October 31, 2008
ruling establishing the amount owing for its accounting fraud dating back to
Year 2000.

SUMMARY: Ernst
& Young (E&Y) "was censured by the
Securities and Exchange Commission (SEC) and
will pay $1.5 million to settle charges that
it compromised its independence through work
it did in 2001 for clients American
International Group Inc. and PNC Financial
Services Group. "Regulators claimed AIG
hired E&Y to develop and promote an
accounting-driven financial product to help
public companies shift troubled or volatile
assets off their books using special-purpose
entities created by AIG." PNC accounted
incorrectly for its special purpose entities
according to the SEC, who also said that
"PNC's accounting errors weren't detected
because E&Y auditors didn't scrutinize
important corporate transactions, relying on
advice given by other E&Y partners.

QUESTIONS:
1.) What are "special purpose entities" or
"variable interest entities"? For what
business purposes may they be developed?

2.) What new interpretation addresses issues
in accounting for variable interest
entities?

3.) What issues led to the development of
the new accounting requirements in this
area? What business failure is associated
with improper accounting for and disclosures
about variable interest entities?

4.) For what invalid business purposes do
regulators claim that AIG used special
purpose entities (now called variable
interest entities)? Why would Ernst & Young
be asked to develop these entities?

5.) What audit services issue arose because
of the combination of consulting work and
auditing work done by one public accounting
firm (E&Y)? What laws are now in place to
prohibit the relationships giving rise to
this conflict of interest?

It appears that, when they were appointed by the 2008 Bailout Program as
consultants and auditors, both PwC and E&W had already settled the AIG lawsuits.
This is not the case for AIG itself that must come up with more cash.

Jim Mahar writes as follows in his Finance Professor Blog on October 30, 2008

The American International Group is rapidly running
through $123 billion in emergency lending provided by the Federal Reserve,
raising questions about how a company claiming to be solvent in September could
have developed such a big hole by October.....Mr. Vickrey says he believes A.I.G.
must have already accumulated tens of billions of dollars worth of losses by
mid-September, when it came close to collapse and received an $85 billion
emergency line of credit by the Fed. That loan was later supplemented by a $38
billion lending facility.

But losses on that scale do not show up in the company’s financial filings.
Instead, A.I.G. replenished its capital by issuing $20 billion in stock and debt
in May and reassured investors that it had an ample cushion....Mr. Vickery and
other analysts are examining the company’s disclosures for clues that the
cushion was threadbare and that company officials knew they had major losses
months before....

Professor Mahar CommentSeveral reasons for including this one. First and
foremost it gets to a serious question. Were the initial infusions by the
government just a stop gap measure and will even more be needed. (The idea of
throwing good money after bad comes to mind).
Secondly in class yesterday we talked about information asymmetries and how
accounting can only partially lessen the problem and that firms can have
billions of dollars of losses that investors may not be aware of even after
reading the financial statements. And
finally a student in class is doing a paper on this and what the executives must
have known (or at least should have known) before hand.

PwC'a auditors either ignored or missed the warning signs of accounting
fraud at AIGFor years, PricewaterhouseCoopers LLP gave a clean bill
of financial health to American International Group Inc., only to watch the
insurance giant disclose a long list of accounting problems this spring. But in
checking for trouble, PwC might have asked the audit committee of AIG's board of
directors, which is supposed to supervise the outside accountant's work. For two
years, the committee said that it couldn't vouch for AIG's accounting. In 2001
and 2002, the five-member directors committee, which included such figures as
former U.S. trade representative Carla A. Hills and, in 2002, former National
Association of Securities Dealers chairman and chief executive Frank G. Zarb,
reported in an annual corporate filing that the committee's oversight did "not
provide an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles." Further, the
committee said, it couldn't assure that the audit had been carried out according
to normal standards or even that PwC was in fact "independent." While the
distancing statement by the audit committee is not unprecedented, the AIG
committee's statement is one of the strongest he has seen, said Itzhak Sharav,
an accounting professor at Columbia University. "Their statement, the phrasing,
all of it seems to be to get the reader to understand that they're going out of
their way to emphasize the possibility of problems that are undisclosed and
undiscovered, and they want no part of it." Language in audit committee reports
ran the gamut . . .
"Accountants Missed AIG Group's Red Flags," SmartPros, May 31, 2005 ---
http://accounting.smartpros.com/x48436.xml

Answer
Cash bonuses on the upside are not returned after the downturn that wipes out
the previous unrealized paper profits.

Phantom (Unrealized) Profits on Paper, but Real Cash Outflows for Employee
Bonuses and Other Compensation
Rarely, if ever, are they forced to pay back their "earnings" even in instances
of earnings management accounting fraud

"Merrill’s record earnings in 2006 — $7.5 billion —
turned out to be a mirage. The company has since lost three times that
amount, largely because the mortgage investments that supposedly had powered
some of those profits plunged in value.

“As a result of the extraordinary growth at Merrill
during my tenure as C.E.O., the board saw fit to increase my compensation
each year.”

— E. Stanley O’Neal, the former chief executive of
Merrill Lynch, March 2008

For Dow Kim, 2006 was a very good year. While his
salary at Merrill Lynch was $350,000, his total compensation was 100 times
that — $35 million.

The difference between the two amounts was his
bonus, a rich reward for the robust earnings made by the traders he oversaw
in Merrill’s mortgage business.

Mr. Kim’s colleagues, not only at his level, but
far down the ranks, also pocketed large paychecks. In all, Merrill handed
out $5 billion to $6 billion in bonuses that year. A 20-something analyst
with a base salary of $130,000 collected a bonus of $250,000. And a
30-something trader with a $180,000 salary got $5 million.

But Merrill’s record earnings in 2006 — $7.5
billion — turned out to be a mirage. The company has since lost three times
that amount, largely because the mortgage investments that supposedly had
powered some of those profits plunged in value.

Unlike the earnings, however, the bonuses have not
been reversed.

As regulators and shareholders sift through the
rubble of the financial crisis, questions are being asked about what role
lavish bonuses played in the debacle. Scrutiny over pay is intensifying as
banks like Merrill prepare to dole out bonuses even after they have had to
be propped up with billions of dollars of taxpayers’ money. While bonuses
are expected to be half of what they were a year ago, some bankers could
still collect millions of dollars.

Critics say bonuses never should have been so big
in the first place, because they were based on ephemeral earnings. These
people contend that Wall Street’s pay structure, in which bonuses are based
on short-term profits, encouraged employees to act like gamblers at a casino
— and let them collect their winnings while the roulette wheel was still
spinning.

“Compensation was flawed top to bottom,” said
Lucian A. Bebchuk, a professor at Harvard Law School and an expert on
compensation. “The whole organization was responding to distorted
incentives.”

Even Wall Streeters concede they were dazzled by
the money. To earn bigger bonuses, many traders ignored or played down the
risks they took until their bonuses were paid. Their bosses often turned a
blind eye because it was in their interest as well.

“That’s a call that senior management or risk
management should question, but of course their pay was tied to it too,”
said Brian Lin, a former mortgage trader at Merrill Lynch.

The highest-ranking executives at four firms have
agreed under pressure to go without their bonuses, including John A. Thain,
who initially wanted a bonus this year since he joined Merrill Lynch as
chief executive after its ill-fated mortgage bets were made. And four former
executives at one hard-hit bank, UBS of Switzerland, recently volunteered to
return some of the bonuses they were paid before the financial crisis. But
few think others on Wall Street will follow that lead.

For now, most banks are looking forward rather than
backward. Morgan Stanley and UBS are attaching new strings to bonuses,
allowing them to pull back part of workers’ payouts if they turn out to have
been based on illusory profits. Those policies, had they been in place in
recent years, might have clawed back hundreds of millions of dollars of
compensation paid out in 2006 to employees at all levels, including senior
executives who are still at those banks.

A Bonus Bonanza

For Wall Street, much of this decade represented a
new Gilded Age. Salaries were merely play money — a pittance compared to
bonuses. Bonus season became an annual celebration of the riches to be had
in the markets. That was especially so in the New York area, where nearly $1
out of every $4 that companies paid employees last year went to someone in
the financial industry. Bankers celebrated with five-figure dinners, vied to
outspend each other at charity auctions and spent their newfound fortunes on
new homes, cars and art.

The bonanza redefined success for an entire
generation. Graduates of top universities sought their fortunes in banking,
rather than in careers like medicine, engineering or teaching. Wall Street
worked its rookies hard, but it held out the promise of rich rewards. In
college dorms, tales of 30-year-olds pulling down $5 million a year were
legion.

While top executives received the biggest bonuses,
what is striking is how many employees throughout the ranks took home large
paychecks. On Wall Street, the first goal was to make “a buck” — a million
dollars. More than 100 people in Merrill’s bond unit alone broke the
million-dollar mark in 2006. Goldman Sachs paid more than $20 million apiece
to more than 50 people that year, according to a person familiar with the
matter. Goldman declined to comment.

Pay was tied to profit, and profit to the easy,
borrowed money that could be invested in markets like mortgage securities.
As the financial industry’s role in the economy grew, workers’ pay
ballooned, leaping sixfold since 1975, nearly twice as much as the increase
in pay for the average American worker.

“The financial services industry was in a bubble,"
said Mark Zandi, chief economist at Moody’s Economy.com. “The industry got a
bigger share of the economic pie.”

A Money Machine

Dow Kim stepped into this milieu in the mid-1980s,
fresh from the Wharton School at the University of Pennsylvania. Born in
Seoul and raised there and in Singapore, Mr. Kim moved to the United States
at 16 to attend Phillips Academy in Andover, Mass. A quiet workaholic in an
industry of workaholics, he seemed to rise through the ranks by sheer will.
After a stint trading bonds in Tokyo, he moved to New York to oversee
Merrill’s fixed-income business in 2001. Two years later, he became
co-president.

Skip to next paragraph

Bloomberg News Dow Kim received $35 million in 2006
from Merrill Lynch.

The Reckoning Cashing In Articles in this series
are exploring the causes of the financial crisis.

Previous Articles in the Series » Multimedia
Graphic It Was Good to Be a Mortgage-Related Professional . . . Related
Times Topics: Credit Crisis — The Essentials

Patrick Andrade for The New York Times Brian Lin is
a former mortgage trader at Merrill Lynch who lost his job at Merrill and
now works at RRMS Advisors. Readers' Comments Share your thoughts. Post a
Comment »Read All Comments (363) »

Even as tremors began to reverberate through the
housing market and his own company, Mr. Kim exuded optimism.

After several of his key deputies left the firm in
the summer of 2006, he appointed a former colleague from Asia, Osman Semerci,
as his deputy, and beneath Mr. Semerci he installed Dale M. Lattanzio and
Douglas J. Mallach. Mr. Lattanzio promptly purchased a $5 million home, as
well as oceanfront property in Mantoloking, a wealthy enclave in New Jersey,
according to county records.

Merrill and the executives in this article declined
to comment or say whether they would return past bonuses. Mr. Mallach did
not return telephone calls.

Mr. Semerci, Mr. Lattanzio and Mr. Mallach joined
Mr. Kim as Merrill entered a new phase in its mortgage buildup. That
September, the bank spent $1.3 billion to buy the First Franklin Financial
Corporation, a mortgage lender in California, in part so it could bundle its
mortgages into lucrative bonds.

The Somali pirates, renegade Somalis known for
hijacking ships for ransom in the Gulf of Aden, are negotiating a purchase
of Citigroup.

The pirates would buy Citigroup with new debt and
their existing cash stockpiles, earned most recently from hijacking numerous
ships, including most recently a $200 million Saudi Arabian oil tanker. The
Somali pirates are offering up to $0.10 per share for Citigroup, pirate
spokesman Sugule Ali said earlier today. The negotiations have entered the
final stage, Ali said. ``You may not like our price, but we are not in the
business of paying for things. Be happy we are in the mood to offer the
shareholders anything," said Ali.

The pirates will finance part of the purchase by
selling new Pirate Ransom Backed Securities. The PRBS's are backed by the
cash flows from future ransom payments from hijackings in the Gulf of Aden.
Moody's and S&P have already issued their top
investment grade ratings for the PRBS's.

Head pirate, Ubu Kalid Shandu, said "we need a bank
so that we have a place to keep all of our ransom money. Thankfully, the
dislocations in the capital markets has allowed us to purchase Citigroup at
an attractive valuation and to take advantage of TARP capital to grow the
business even faster." Shandu added, "We don't call ourselves pirates. We
are coastguards and this will just allow us to guard our coasts better."

Liars Poker II is called "The End"
The Not-Funny Punch Line is Not Until Page 9 of This Tongue in Cheek Explanation
of the Meltdown on Wall Street!

Now I asked
Gutfreund about his biggest decision. “Yes,” he said. “They—the heads of
the other Wall Street firms—all said what an awful thing it was to go public
(beg for a government bailout) and how could you do such a thing. But when the
temptation arose, they all gave in to it.” He agreed that the main effect of
turning a partnership into a corporation was to transfer the financial risk
to the shareholders. “When things go wrong, it’s their problem,” he said—and
obviously not theirs alone. When a Wall Street investment bank screwed up
badly enough, its risks became the problem of the U.S. government. “It’s
laissez-faire until you get in deep shit,” he said, with a half chuckle. He
was out of the game.

To this day, the willingness of a Wall Street
investment bank to pay me hundreds of thousands of dollars to dispense
investment advice to grownups remains a mystery to me. I was 24 years old,
with no experience of, or particular interest in, guessing which stocks and
bonds would rise and which would fall. The essential function of Wall Street
is to allocate capital—to decide who should get it and who should not.
Believe me when I tell you that I hadn’t the first clue.

I’d never taken an accounting course, never run a
business, never even had savings of my own to manage. I stumbled into a job
at Salomon Brothers in 1985 and stumbled out much richer three years later,
and even though I wrote a book about the experience, the whole thing still
strikes me as preposterous—which is one of the reasons the money was so easy
to walk away from. I figured the situation was unsustainable. Sooner rather
than later, someone was going to identify me, along with a lot of people
more or less like me, as a fraud. Sooner rather than later, there would come
a Great Reckoning when Wall Street would wake up and hundreds if not
thousands of young people like me, who had no business making huge bets with
other people’s money, would be expelled from finance.

When I sat down to write my account of the
experience in 1989—Liar’s Poker, it was called—it was in the spirit of a
young man who thought he was getting out while the getting was good. I was
merely scribbling down a message on my way out and stuffing it into a bottle
for those who would pass through these parts in the far distant future.

Unless some insider got all of this down on paper,
I figured, no future human would believe that it happened.

I thought I was writing a period piece about the
1980s in America. Not for a moment did I suspect that the financial 1980s
would last two full decades longer or that the difference in degree between
Wall Street and ordinary life would swell into a difference in kind. I
expected readers of the future to be outraged that back in 1986, the C.E.O.
of Salomon Brothers, John Gutfreund, was paid $3.1 million; I expected them
to gape in horror when I reported that one of our traders, Howie Rubin, had
moved to Merrill Lynch, where he lost $250 million; I assumed they’d be
shocked to learn that a Wall Street C.E.O. had only the vaguest idea of the
risks his traders were running. What I didn’t expect was that any future
reader would look on my experience and say, “How quaint.”

I had no great agenda, apart from telling what I
took to be a remarkable tale, but if you got a few drinks in me and then
asked what effect I thought my book would have on the world, I might have
said something like, “I hope that college students trying to figure out what
to do with their lives will read it and decide that it’s silly to phony it
up and abandon their passions to become financiers.” I hoped that some
bright kid at, say, Ohio State University who really wanted to be an
oceanographer would read my book, spurn the offer from Morgan Stanley, and
set out to sea.

Somehow that message failed to come across. Six
months after Liar’s Poker was published, I was knee-deep in letters from
students at Ohio State who wanted to know if I had any other secrets to
share about Wall Street. They’d read my book as a how-to manual.

In the two decades since then, I had been waiting
for the end of Wall Street. The outrageous bonuses, the slender returns to
shareholders, the never-ending scandals, the bursting of the internet
bubble, the crisis following the collapse of Long-Term Capital Management:
Over and over again, the big Wall Street investment banks would be, in some
narrow way, discredited. Yet they just kept on growing, along with the sums
of money that they doled out to 26-year-olds to perform tasks of no obvious
social utility. The rebellion by American youth against the money culture
never happened. Why bother to overturn your parents’ world when you can buy
it, slice it up into tranches, and sell off the pieces?

At some point, I gave up waiting for the end. There
was no scandal or reversal, I assumed, that could sink the system.

The New Order The crash did more than wipe out
money. It also reordered the power on Wall Street. What a Swell Party A
pictorial timeline of some Wall Street highs and lows from 1985 to 2007.
Worst of Times Most economists predict a recovery late next year. Don’t bet
on it. Then came Meredith Whitney with news. Whitney was an obscure analyst
of financial firms for Oppenheimer Securities who, on October 31, 2007,
ceased to be obscure. On that day, she predicted that Citigroup had so
mismanaged its affairs that it would need to slash its dividend or go bust.
It’s never entirely clear on any given day what causes what in the stock
market, but it was pretty obvious that on October 31, Meredith Whitney
caused the market in financial stocks to crash. By the end of the trading
day, a woman whom basically no one had ever heard of had shaved $369 billion
off the value of financial firms in the market. Four days later, Citigroup’s
C.E.O., Chuck Prince, resigned. In January, Citigroup slashed its dividend.

From that moment, Whitney became E.F. Hutton: When
she spoke, people listened. Her message was clear. If you want to know what
these Wall Street firms are really worth, take a hard look at the crappy
assets they bought with huge sums of ­borrowed money, and imagine what
they’d fetch in a fire sale. The vast assemblages of highly paid people
inside the firms were essentially worth nothing. For better than a year now,
Whitney has responded to the claims by bankers and brokers that they had put
their problems behind them with this write-down or that capital raise with a
claim of her own: You’re wrong. You’re still not facing up to how badly you
have mismanaged your business.

Rivals accused Whitney of being overrated; bloggers
accused her of being lucky. What she was, mainly, was right. But it’s true
that she was, in part, guessing. There was no way she could have known what
was going to happen to these Wall Street firms. The C.E.O.’s themselves
didn’t know.

Now, obviously, Meredith Whitney didn’t sink Wall
Street. She just expressed most clearly and loudly a view that was, in
retrospect, far more seditious to the financial order than, say, Eliot
Spitzer’s campaign against Wall Street corruption. If mere scandal could
have destroyed the big Wall Street investment banks, they’d have vanished
long ago. This woman wasn’t saying that Wall Street bankers were corrupt.
She was saying they were stupid. These people whose job it was to allocate
capital apparently didn’t even know how to manage their own.

At some point, I could no longer contain myself: I
called Whitney. This was back in March, when Wall Street’s fate still hung
in the balance. I thought, If she’s right, then this really could be the end
of Wall Street as we’ve known it. I was curious to see if she made sense but
also to know where this young woman who was crashing the stock market with
her every utterance had come from.

It turned out that she made a great deal of sense
and that she’d arrived on Wall Street in 1993, from the Brown University
history department. “I got to New York, and I didn’t even know research
existed,” she says. She’d wound up at Oppenheimer and had the most
incredible piece of luck: to be trained by a man who helped her establish
not merely a career but a worldview. His name, she says, was Steve Eisman.

Eisman had moved on, but they kept in touch. “After
I made the Citi call,” she says, “one of the best things that happened was
when Steve called and told me how proud he was of me.”

Having never heard of Eisman, I didn’t think
anything of this. But a few months later, I called Whitney again and asked
her, as I was asking others, whom she knew who had anticipated the cataclysm
and set themselves up to make a fortune from it. There’s a long list of
people who now say they saw it coming all along but a far shorter one of
people who actually did. Of those, even fewer had the nerve to bet on their
vision. It’s not easy to stand apart from mass hysteria—to believe that most
of what’s in the financial news is wrong or distorted, to believe that most
important financial people are either lying or deluded—without actually
being insane. A handful of people had been inside the black box, understood
how it worked, and bet on it blowing up. Whitney rattled off a list with a
half-dozen names on it. At the top was Steve Eisman.

Steve Eisman entered finance about the time I
exited it. He’d grown up in New York City and gone to a Jewish day school,
the University of Pennsylvania, and Harvard Law School. In 1991, he was a
30-year-old corporate lawyer. “I hated it,” he says. “I hated being a
lawyer. My parents worked as brokers at Oppenheimer. They managed to finagle
me a job. It’s not pretty, but that’s what happened.”

He was hired as a junior equity analyst, a helpmate
who didn’t actually offer his opinions. That changed in December 1991, less
than a year into his new job, when a subprime mortgage lender called Ames
Financial went public and no one at Oppenheimer particularly cared to
express an opinion about it. One of Oppenheimer’s investment bankers stomped
around the research department looking for anyone who knew anything about
the mortgage business. Recalls Eisman: “I’m a junior analyst and just trying
to figure out which end is up, but I told him that as a lawyer I’d worked on
a deal for the Money Store.” He was promptly appointed the lead analyst for
Ames Financial. “What I didn’t tell him was that my job had been to
proofread the ­documents and that I hadn’t understood a word of the fucking
things.”

Ames Financial belonged to a category of firms
known as nonbank financial institutions. The category didn’t include J.P.
Morgan, but it did encompass many little-known companies that one way or
another were involved in the early-1990s boom in subprime mortgage
lending—the lower class of American finance.

The second company for which Eisman was given sole
responsibility was Lomas Financial, which had just emerged from bankruptcy.
“I put a sell rating on the thing because it was a piece of shit,” Eisman
says. “I didn’t know that you weren’t supposed to put a sell rating on
companies. I thought there were three boxes—buy, hold, sell—and you could
pick the one you thought you should.” He was pressured generally to be a bit
more upbeat, but upbeat wasn’t Steve Eisman’s style. Upbeat and Eisman
didn’t occupy the same planet. A hedge fund manager who counts Eisman as a
friend set out to explain him to me but quit a minute into it. After
describing how Eisman exposed various important people as either liars or
idiots, the hedge fund manager started to laugh. “He’s sort of a prick in a
way, but he’s smart and honest and fearless.”

“A lot of people don’t get Steve,” Whitney says.
“But the people who get him love him.” Eisman stuck to his sell rating on
Lomas Financial, even after the company announced that investors needn’t
worry about its financial condition, as it had hedged its market risk. “The
single greatest line I ever wrote as an analyst,” says Eisman, “was after
Lomas said they were hedged.” He recited the line from memory: “ ‘The Lomas
Financial Corp. is a perfectly hedged financial institution: It loses money
in every conceivable interest-rate environment.’ I enjoyed writing that
sentence more than any sentence I ever wrote.” A few months after he’d
delivered that line in his report, Lomas Financial returned to bankruptcy.

Lewis writes in Partnoy’s earlier whistleblower
style with somewhat more intense and comic portrayals of the major players
in describing the double dealing and break down of integrity on the trading
floor of Salomon Brothers.

This is the first of a somewhat
repetitive succession of Partnoy’s “FIASCO” books that
influenced my life. The most important revelation from
his insider’s perspective is that the most trusted firms
on Wall Street and financial centers in other major
cities in the U.S., that were once highly professional
and trustworthy, excoriated the guts of integrity
leaving a façade behind which crooks less violent than
the Mafia but far more greedy took control in the
roaring 1990s.

After selling a succession of phony
derivatives deals while at Morgan Stanley, Partnoy blew
the whistle in this book about a number of his
employer’s shady and outright fraudulent deals sold in
rigged markets using bait and switch tactics.
Customers, many of them pension fund investors for
schools and municipal employees, were duped into complex
and enormously risky deals that were billed as safe as
the U.S. Treasury.

His books have received mixed reviews,
but I question some of the integrity of the reviewers
from the investment banking industry who in some
instances tried to whitewash some of the deals described
by Partnoy. His books have received a bit less praise
than the book Liars Poker by Michael Lewis, but
critics of Partnoy fail to give credit that Partnoy’s
exposes preceded those of Lewis.

Like his earlier books, some investment
bankers and literary dilettantes who reviewed this book
were critical of Partnoy and claimed that he
misrepresented some legitimate structured financings.
However, my reading of the reviewers is that they were
trying to lend credence to highly questionable offshore
deals documented by Partnoy. Be that as it may, it
would have helped if Partnoy had been a bit more
explicit in some of his illustrations.

This is a
blistering indictment of the unregulated OTC market
for derivative financial instruments and the million
and billion dollar deals conceived in investment
banking. Among other things, Partnoy describes
Morgan Stanley’s annual drunken skeet-shooting
competition organized by a “gun-toting strip-joint
connoisseur” former combat officer (fanatic) who
loved the motto: “When derivatives are outlawed
only outlaws will have derivatives.” At that event,
derivatives salesmen were forced to shoot entrapped
bunnies between the eyes on the pretense that the
bunnies were just like “defenseless animals” that
were Morgan Stanley’s customers to be shot down even
if they might eventually “lose a billion dollars on
derivatives.”

This book has one of the best accounts of the
“fiasco” caused almost entirely by the duping of
OrangeCounty’s Treasurer (Robert Citron)
by the unscrupulous Merrill Lynch derivatives
salesman named Michael
Stamenson. OrangeCountyeventually lost over a billion
dollars and was forced into bankruptcy. Much of
this was later recovered in court from Merrill
Lynch. Partnoy calls
Citron and Stamenson
“The Odd Couple,” which is also the title of Chapter
8 in the book.Frank Partnoy, Infectious Greed:
How Deceit and Risk Corrupted the Financial Markets
(Henry Holt & Company, Incorporated, 2003, ISBN:
080507510-0, 477 pages)Frank Partnoy, Infectious
Greed: How Deceit and Risk Corrupted the Financial
Markets (Henry Holt & Company, Incorporated,
2003, ISBN: 080507510-0, 477 pages)

Partnoy shows how corporations gradually
increased financial risk and lost control over overly
complex structured financing deals that obscured the
losses and disguised frauds pushed corporate officers
and their boards into successive and ingenious
deceptions." Major corporations such as Enron, Global
Crossing, and WorldCom entered into enormous illegal
corporate finance and accounting. Partnoy documents the
spread of this epidemic stage and provides some
suggestions for restraining the disease.

"The Siskel and
Ebert of Financial Matters: Two Thumbs Down for the
Credit Reporting Agencies" by Frank Partnoy,
Washington University Law Quarterly, Volume 77, No. 3,
1999 ---
http://ls.wustl.edu/WULQ/

4. What are
examples of related books that are somewhat more
entertaining than Partnoy’s early books?

Lewis writes in Partnoy’s earlier
whistleblower style with somewhat more intense and comic
portrayals of the major players in describing the double
dealing and break down of integrity on the trading floor
of Salomon Brothers.

This is
a hilarious tongue-in-cheek account by Wharton and
Harvard MBAs who thought they were starting out as
stock brokers for $200,000 a year until they
realized that they were on the phones in a bucket
shop selling sleazy IPOs to unsuspecting
institutional investors who in turn passed them
along to widows and orphans. They write. "It took
us another six months after that to realize
that we were, in fact, selling crappy public
offerings to investors."

There are other books along a similar
vein that may be more revealing and entertaining
than the early books of Frank Partnoy, but he was
one of the first, if not the first, in the roaring
1990s to reveal the high crime taking place behind
the concrete and glass of Wall Street. He was the
first to anticipate many of the scandals that soon
followed. And his testimony before the U.S. Senate
is the best concise account of the crime that
transpired at Enron. He lays the blame clearly at
the feet of government officials (read that Wendy
Gramm) who sold the farm when they deregulated the
energy markets and opened the doors to unregulated
OTC derivatives trading in energy. That is when
Enron really began bilking the public.

A New Jersey jury found
that Parmalat, the Italian food and dairy company, had defrauded Citigroup and
awarded the bank $364.2 million in damages.

The 6-to-1 verdict
cleared Citigroup of any wrongdoing after a five-month civil trial that delved
into complex, off-balance-sheet accounting that enabled Parmalat to artificially
raise its earnings.

The verdict was returned
on Monday in New Jersey Superior Court in Hackensack.

For Citigroup, the
decision will most likely be the last in several accounting scandals that
entangled it earlier this decade. The bank previously reached settlements over
its roles in Enron and WorldCom. But more litigation is coming.

The bank is expected to
face billions of dollars in legal claims over its role in the subprime mortgage
market and is engaged in another battle with Wells Fargo over the takeover of
the Wachovia Corporation.

Parmalat’s new
management, including its chief executive, Enrico Bondi, had sought up to $2.2
billion in damages from Citigroup, contending its bankers designed a series of
complex transactions that helped Parmalat “mask their systemic looting of the
company” while collecting tens of millions in fees. The Italian company
collapsed in 2003 under billions of dollars of debt.

Citigroup said it was a
victim of Parmalat’s fraud and countersued for damages. On Monday, Citigroup
said it was delighted that a jury had vindicated its position. “We have said
from the beginning that we have done nothing wrong,” the bank said. “Citi was
the largest victim of the Parmalat fraud and not part of it.”

Officials from Parmalat
could not be reached, but the company is expected to appeal the decision.

Citigroup was the first
financial services firm to go to trial in the United States over Parmalat’s
accusations. Parmalat is pursuing separate claims against the Bank of America
andGrant Thornton, the accounting firm,
in Manhattan federal court. That case is expected to
go to trial next year; both companies have denied any wrongdoing.

Defeasance OBSF was
invented over 20 years ago in order to report a $132
million gain on $515 million in bond debt. An SPE
was formed in a bank
' s trust department (although the
term SPE was not used in those days). The bond debt
was transferred to the SPE and the trustee purchased
risk-free government bonds that, at the future
maturity date of the bonds, would exactly pay off
the balance due on the bonds as well as pay the
periodic interest payments over the life of the
bonds.

At the time of the
bond transfer, Exxon captured the $132 million gain
that arose because the bond interest rate on the
debt was lower than current market interest rates.
The economic wisdom of defeasance is open to
question, but its cosmetic impact on balance sheets
became popular in some companies until defeasance
rules were changed first by FAS 76 and later by FAS
125.

Exxon removed the $515 million
in debt from its consolidated balance sheet even
though it was technically still the primary obligor
of the debt placed in the hands of the SPE trustee.
Although there should be no further risk when the in
substance defeasance is accomplished with risk-free
government bond investments, FAS 125 in 1996 ended
this approach to debt extinguishment. FASB
Statement No. 125 requires derecognition of a
liability if and only if either (a) the debtor pays
the creditor and is relieved of its obligation for
the liability or (b) the debtor is legally released
from being the primary obligor under the liability.
Thus, a liability is not considered extinguished by
an in-substance defeasance.

From
The Wall Street Journal Accounting Educators' Reviews
on January 16, 2004

SUMMARY: The article
describes several points apparent from Parmalat's
financial statements that, in hindsight, give reason to
have questioned the company's actions. Discussion
questions relate to appropriate audit steps that should
have been taken in relation to these items. As well,
financial reporting for in-substance defeasance of debt
is apparently referred to in the article and is
discussed in two questions.

QUESTIONS:
1.) Describe the signals that investors are purported to
have missed according to the article's three authors.

2.) Suppose you were
the principal auditor on the Parmalat account for
Deloitte & Touche. Would you have noted some of the
factors you listed as answers to question #1 above? If
so, how would you have made that assessment?

3.) Why do the authors
argue that it should have been seen as strange that the
company kept issuing new debt given the cash balances
that were shown on the financial statements?

4.) Define the term
"in-substance defeasance" of debt. Compare that
definition to the debt purportedly repurchased by
Parmalat and described in this article. How did reducing
the total amount of debt shown on its balance sheet help
Parmalat's management in committing this alleged fraud?

5.) Is it acceptable
to remove defeased debt from a balance sheet under
USGAAP? If not, then how could the authors write that,
"at the time, accountants and S&P said that [the
accounting for Parmalat's debt] was strange, but that
technically there was nothing wrong with it"? (Hint: in
your answer, consider what basis of accounting Parmalat
is using.)

Top UBS Banker Faces Jail Time in Tax Shelter SchemeU.S. prosecutors charged one of the world's top private
bankers, a senior executive of UBS AG, with helping rich clients evade federal
income taxes, the latest U.S. move aimed at pressuring Swiss banking officials
to reveal the names of their American account holders. Raoul Weil, a member of
the Swiss banking giant's executive board, is accused of organizing a phalanx of
private bankers to help hide from U.S. tax authorities about $20 billion in
assets belonging to about 20,000 clients, according to an indictment filed in
U.S. District Court in Fort Lauderdale, Fla. The alleged offenses occurred
between 2002 and 2007, when Mr. Weil was the bank's top international wealth
management executive. Mr. Weil, according to federal prosecutors, referred to
the offshore business as "toxic waste" because of the risks it posed to the
bank, but oversaw the expansion of the accounts because they were so profitable.
If convicted on the felony charge of conspiring to defraud the U.S. government,
Mr. Weil could serve a maximum of five years in jail.
"Top Banker Cited In Tax-Dodge Case," by Evan Perez and Carrick Mollenk, The
Wall Street Journal, November 13m 2008 ---
http://online.wsj.com/article/SB122650872732121043.html?mod=todays_us_page_one

Three Asian electronics companies have agreed to
plead guilty and pay $585 million in fines for conspiring to drive up prices
for people buying computers, TVs and other LCD screens.

In a plea deal filed Wednesday, LG Display, , Sharp
and Chunghwa Picture Tubes agreed to cooperate in an antitrust investigation
being run by the Justice Department.

The plea agreement was filed in federal court in
San Francisco.

LCDs, or liquid-crystal display monitors, are the
glass display screens on most laptop computers, cellphones and new TVs.

The deputy assistant attorney general, Scott D.
Hammond, said the scheme cost not only consumers, but also retailers
including Apple, Dell and Motorola.

Mr. Hammond did not have a cost value for the
losses, and said the investigation was continuing.

“These price-fixing conspiracies affected millions
of American consumers who use computers, cellphones and numerous other
household electronics every day,” Mr. Hammond told reporters at a Justice
Department briefing announcing the deal. “By conspiring to drive up the
price of LCD panels, consumers were forced to pay more for these products.
And consumers were not the only ones affected by these conspiracies.”

There is a $70 billion worldwide market for LCD
screens. Regulators in Asia and the European Union also have opened
investigations into LCD pricing.

The Justice Department said LG Display, a South
Korean company, and its LG Display America unit agreed to pay a $400 million
fine for taking part in a conspiracy to fix the price of certain LCD panels
from September 2001 to June 2006. That is the second-highest criminal fine
ever imposed by the Justice Department’s antitrust division.

Chunghwa, a Taiwanese company, agreed to pay $65
million for joining with LG and other unnamed companies in the price-fixing
conspiracy between September 2001 and December 2006.

And Sharp, a Japanese company, agreed to pay $120
million for participating in separate conspiracies to fix the price of
certain LCD panels sold to Dell, Motorola and Apple between 2001 and 2006.
Those panels were used in computer monitors, laptops, Motorola Razr mobile
phones and Apple’s iPod portable music players.

“After carefully taking into consideration the
applicable laws and regulations, the facts and other factors, Sharp has
decided that the best possible course of action would be to conclude the
aforementioned agreement,” the company said in a statement, adding that it
will record the fine as an extraordinary expense in the quarter that ends in
December.

Sharp also said its chairman and chief executive
and some company directors would voluntarily return 10 to 30 percent of
their compensation for three months starting in December because of
“inconvenience and/or anxiety to our shareholders and other persons
concerned.”

“Sharp understands the gravity of this situation
and will strengthen and thoroughly implement measures to prevent the
recurrence of this kind of problem, and will earnestly work to regain the
public’s confidence,” the company said.

Representatives from LG Display and Chunghwa could
not immediately be reached for comment Wednesday afternoon.

The Justice Department recently took a bow in its
legal victory over the law firm of Milberg Weiss. But now it seems Justice
may itself have been conned by the notorious firm and its felonious former
lead partner, Melvyn Weiss.

It was only last month that Milberg agreed to pay
$75 million as part of a nonprosecution agreement over Justice's charges
that it had run a 30-year kickback scheme. Not 30 days, or months. Thirty
years. The firm got off easy, not least because it finally cut ties with the
partners (including Weiss) it blamed for the scheme. Yet according to papers
filed in New York State court, even as Milberg was pinning the blame on
these criminals and telling Justice it had thrown them overboard, the law
firm's remaining partners were agreeing to pay millions to Weiss going
forward. Apparently crime does pay.

Continued in article

Jensen Comment

If I'm not mistaken, before we knew Melvyn Weiss was going to become a
convicted felon, he was a very sanctimonious featured plenary session
speaker a few years ago at an American Accounting Association annual
meeting. I no longer have the video (I gave it and my other videos to the
accounting history archives at the University of Mississippi.) My
recollection is that Mr. Weiss lambasted CPA firms for wanting limited
liability.